1972 oep steminfla

STEMMINGNFLATION

The Office ofEmergency Preparednessand the 90-Day Freeze

Harry B. YoshpeJohn F. Allums

Joseph E. RussellBarbara A. Atkin

EXECUTIVE OFFICE OF THE PRESIDENTOFFICE OF EMERGENCY PREPAREDNESS

WASHINGTON, D.C.1972

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THE WHITE HOUSE

W A S H I N G T O N

On August 15, 1971, I announced a series of measuresdesigned to stabilize the economy at home and to help ourcountry maintain its rightful economic position in theworld. Among these measures was the first peacetime wage-price freeze in our history.

In prescribing the 90-day freeze, I set down severalguiding principles: we would move toward a greater sta-bility of wages and prices, but we would do this withoutfastening on the Nation a permanent straitjacket of con-trols and without creating a huge bureaucracy. Theseprinciples prompted the establishment of the interagencyCost of Living Council under the chairmanship of theSecretary of the Treasury, the designation of the Officeof Emergency Preparedness as the central instrument toadminister the freeze, and the reliance upon the coordi-nated teamwork of the other Federal departments andagencies.

Under the leadership of Director George A. Lincoln,the Office of Emergency Preparedness succeeded in holdingthe line while we worked out the longer term measuresneeded to maintain wage-price moderation and improve ourposition in the changing world economy. All Americanscan take pride in this accomplishment, for it was theirsplendid cooperation and support that, in the finalanalysis, made it possible for the program to succeed.

As we take the road back toward wage-price stabilityand the operation of free market forces, it is importantthat we provide, for the benefit of future generations,a full record of this experience. I am pleased that acomprehensive history of the management of the wage-pricefreeze has been prepared. And I hope that this book willpromote a more general appreciation and a deeper under-standing of the problems encountered and the lessonslearned in this undertaking.

August 1972


ForewordOn Sunday night, August 15, 1971, President Nixon announced

a "New Economic Policy"—a comprehensive program of interlock-ing measures designed to bring inflation under control, stimulatethe economy, and correct the acute disequilibrium that had de-veloped in the Nation's international economic position. Includedin this program was a provision for a 90-day wage-price freeze asa necessary first step to curb the persistent inflation and to buytime during which a longer-term and more flexible policy forreasonable wage and price behavior would be worked out.

Here was a new initiative, unprecedented in America's peace-time experience. To be sure, authorizing legislation had been en-acted a year earlier, and even before then there was strong publicsentiment for curbing inflation. Yet, few people in the Summerof 1971 expected the President to take the course of direct govern-ment intervention in private wage-price decisions. By his actionPresident Nixon took the question of direct stabilization controlsin a nonwar setting out of the realm of political .and academicdebate and made it a new chapter in American economic history.

It is a chapter replete with unique experience in organization,management, policy, and operations; we should not ignore it insetting public economic policy in the future. In my capacity asDirector of the President's Office of Emergency Preparedness, Iwas privileged to have been charged with the administration ofthe wage-price freeze. Early in the freeze I directed the compilationof a comprehensive historical record of the experience, so that wemay determine what has been good and bad, useful and harmful,and so that we may have, for our future guidance, a better appreci-ation of the causes and conditions for both our successes and short-comings.

Such a record should be of considerable interest—to publicofficials charged with planning and administering government pro-grams; to scholars interested in the Government's efforts to fashionand implement public policy; and to the general public concernedwith the performance of its Government, particularly in fields likeeconomic stabilization which so intimately affect their daily lives.

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Publication of this historical record, it is hoped, will help to meetthese needs by providing a deeper appreciation and understandingof OEP's role in the wage-price freeze.

G. A. LINCOLNDirector

Office of Emergency PreparednessExecutive Office of the PresidentWashington, D.C.August 15, 1972.

VIII


PrefaceA few days after the President's announcement of the wage-price

freeze, Mr. George A. Lincoln, Director of the Office of EmergencyPreparedness, asked me to take the lead in planning and develop-ing a comprehensive historical account of the Agency's experiencein managing this program. Such an account, he felt, would servethe public interest, and the most favorable time to prepare it waswhile the experience was fresh in the minds of the participantsand the records were most readily available.

The project was carried out by a small team of professionalhistorians. Besides directing and coordinating the undertaking, Iwrote Chapters I, VIII, and IX. John F. Allums collaborated withme in the overall planning of the task and contributed ChaptersII and III. Joseph E. Russell wrote Chapters IV, V, and VI andlent strong editorial support to the entire work. Barbara A. Atkinwrote Chapter VII, prepared the Chronology, and assisted Mr.Russell with the heavy burdens of editing the final manuscriptand preparing it for the printer. All worked together as a team,sharing sources of information and commenting on one another'sdraft manuscripts. While each assumes responsibility for his or herchapters, the total history represents contributions of ideas andlabor from the entire group.

Of special significance was the cooperation and encouragementwe received from the Director and the entire staff at every stagein the preparation of this history. Being on the scene almost fromthe outset of the freeze and set up strategically with a Special Staffrelationship to the Director, the historians had ready access to allofficial files. They were in an extraordinarily good position tocollect, screen, and organize important materials relating to thefreeze while it was still in progress. They supplemented the writtenrecord with interviews with key personnel to clarify facts andround out their interpretation. The historians visited four Re-gional Offices and obtained comprehensive after-action reportsfrom all 10 Regional Directors.

The historians' indebtedness to the Director and the staff bothat the headquarters and in the field is immeasurable; without thistop-level interest and support, this volume could not have beenproduced in its present scope and depth or completed in the time

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allotted for the purpose. The "Bibliographical Note" at the end ofthis volume names some of the people who reviewed our manu-scripts and offered many helpful suggestions for their improve-ment. It would not be feasible to list the many additional peoplewho provided assistance. We do wish to single out, however,Jerome Brussell, who designed the cover and produced all theorganization charts; Alice Bandy, who made available the basicdocumentation in the Director's files; Carol Wanner and NanDever, who provided us with library and congressional materials;and Theresa Moorleghen, Jeanne Criss, and Anne Lockhart, whosteadfastly and patiently typed manuscripts and provided secre-tarial assistance.

The authors sought to observe the standards of scholarshipassociated with the historical profession. They made every effortnot merely to chronicle the events, but to analyze objectively theproblems encountered, show how they were met, and explain thereasons underlying policy and administrative decisions. Whatevermerit this book may have is due in no small measure to the co-operation and assistance we received from all who participated inadministering the freeze. Needless to say, the authors assume fullresponsibility for the organization and presentation of the subject,for any opinions expressed or implied, and for any errors of detailor judgment.

HARRY B. YOSHPEHistorian


Contents

PRESIDENTIAL STATEMENTFOREWORD by George A. Lincoln, Director, Office of

Emergency Preparedness viiPREFACE ix

I. THE PRESIDENT'S ECONOMIC PROGRAM . . . 1Historical Context 1Problems Besetting the Nixon Administration . . . . 4The Decision at Camp David 8The New Economic Policy 11The Wage-Price Freeze 12

Legislative Base 14The Freeze Order 17

Apparatus for Administering the Freeze 19The Cost of Living Council 19OEP: The "Operating Agency" for CLC 21

II. ORGANIZATION: STRUCTURE, STAFFING,SUPPORT 26

Underlying Concepts 26Nature of the Task 26Environment of the Freeze 26Resources Available for the Task 28Lincoln's Concept of Crisis Management 28

National Office Organization 29Field Organization 36Building an Operational Staff 42

General Policy on Staffing 42The Staff Expands 4 4

Integrating the Newcomers 45Staffing Problems 47Evaluation of Staffing Policy 49

Administrative, Logistical, and Technical Support 50Administrative and Logistical Support 50Technical Support 52

III. MANAGING THE FREEZE 53Directing the Program 53

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PageSetting the Course and Pace 53Techniques and Instruments of Control 54

Coordination and Liaison 55National Office 55Regional Offices 58

Communications and Operational Control 60Operations Center 60Communications Section 61Communications within the System 61Communications with the Public and Outside

Agencies 65Responding to Public Inquiries 66

Correspondence Section 66Congressional and Public Affairs Office 67Inquiry Review Section 68

Operational Feedback and Reporting 70Daily Economic Stabilization Report 71Daily and Weekly Reports to CLC 71

IV. POLICY AND GUIDANCE 74Legal Base 74Operative Principles 75Formulation of Guidance 76Dissemination and Interpretation of Policy 78Major Policy Determinations 80

Transaction and Seasonality Rules 80Prices 82Wages 86Teachers' Salaries 89Rents 91

Looking Forward 92

V. EXCEPTIONS AND EXEMPTIONS 96Authority 96Policy 97Organization 99The Statistical Picture 101Significant Cases 105

Wages and Fringe Benefits 105Government Service Charges 107Prices and Rents 109

Transition 114Conclusions

VI. COMPLIANCE AND ENFORCEMENT 117The Goal: Voluntary Compliance 117

XII


Page

Authority and Procedures 118The Record of Compliance 121Enforcement 123

Rent Cases 127Wages and Salaries 127Price Lists 131Price Violations 133Sporting Events 135

The Question of Constitutionality 138Conclusions 141

VII. BUILDING PUBLIC UNDERSTANDING 143Initial Response to the Freeze 143Freeze Requirements and Public Information . . . . 145Public Information Network 147

National Office Organization 147Field Network 148

Public Information Activities 150Relations with the News Media 150

Press Releases 151Coverage by the News Media 153

The Speakers' Program 155Trade Associations and the Spread of Information 157Coordination with State and Local Governments 159Congressional Relations 161

Responding to Public Concerns 162

VIII. PLANNING FOR THE POSTFREEZE PERIOD . . 168Looking Beyond the Freeze 168

What Comes Next? 168OEP Inputs to Phase II Planning 170The Postfreeze Program 172

OEP Links to the Postfreeze Program 178Continuity of Freeze Rules 179Issue Papers 179Detail of Personnel 181Planning for IRS Takeover 182

Redirection of OEP Efforts 186

IX. CONCLUDING OBSERVATIONS 189Benchmarks of Success 190

Consumer Price Index 190Wholesale Price Index 191Other Encouraging Signs 192

Points of Conflict 193OEP Management of the Freeze 194

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Page

Organization 195Administrative Management 196Policy Guidance 198Exceptions and Exemptions 199Compliance and Enforcement 200Informing the Public 200Transition to Phase II 201Overall Assessment 202

LIST OF ABBREVIATIONS 205CHRONOLOGY 206EXHIBITS 223

1. Economic Stabilization Act of 1970 (Public Law91-379), August 15, 1970 224

2. Executive Order No. 11588, Providing for the Stabili-zation of Wages and Prices in the ConstructionIndustry, March 29, 1971 225

3. Public Law 92-15, May 18, 1971, amending Section202 of the Economic Stabilization Act of 1970 228

4. Executive Order No. 11615, Providing for Stabiliza-tion of Prices, Rents, Wages, and Salaries, August15, 1971 229

5. Cost of Living Council Order No. 1, August 17, 1971,delegating authority to the Director, Office of Emer-gency Preparedness 231

6. OEP Economic Stabilization Order No. 1, August 19,1971, delegating to the Secretary of the Treasury"certain administrative and operating functionsrelating to the implementation of the program" .. 232

7. Treasury Department Order No. 150-75, August 19,1971, delegating authority to the Commissioner ofInternal Revenue 233

8. Internal Revenue Service Delegation Order No. 117,August 20, 1971, delegating authority to IRSRegional Commissioners, District Directors, andService Center Directors 233

9. OEP Economic Stabilization Regulation No. 1,Stabilization Regulations for Prices, Rents, Wages,and Salaries, August 20, 1971 234

10. Executive Order No. 11627, Further Providing forthe Stabilization of the Economy, October 15, 1971 239

11. Economic Stabilization Act Amendments of 1971(Public Law 92-210), December 22, 1971 244

BIBLIOGRAPHICAL NOTE 257INDEX 271

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IllustrationsPage

Frontispiece-The Cost of Living Council Meeting withthe President ii

Figures1- Office of Emergency Preparedness (Organization

Chart) • 312- OEP Organization for Economic Stabilization

Activities 343 - Office of Emergency Preparedness Regions 374- OEP Regional Office Organization for Economic

Stabilization 385- Wage-Price Freeze Organization 416- Flow of Communications 627- Postfreeze Organization 175

Tables1- Detailed Personnel: Agency Affiliation 452- Detailed and Appointed Personnel: OEP Office

Assignment 473- Number of Inquiries by OEP Regions and Percent-

ages by Category, August 28-November 9 684- Correspondence on Exception /Exemption Requests. . 1025- National Office Review of Regional Denials of

Exemption Requests 1046- Disposition of Complaints by IRS 1227- OEP's Disposition of Potential Court Cases 1228- Phase I Suits Filed by the U.S. Government 1269- All Phase I Suits 126

10- Availability of Ceiling Price Information,November 1-5, 1971 133

11- Required Reporting of Price and Wage Increases . . . 17312- Changes in Consumer Prices, Selected Months, 1971.. 19013- Changes in Wholesale Industrial Commodity Prices,

Selected Months, 1971 192

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The President's Economic Program

HISTORICAL CONTEXT

The President's prescription of a wage-price freeze on August 15,1971 marked the first time America had undertaken a program ofthis sort in peacetime. Such action had been taken during WorldWar II and again during the Korean War as part of a kit of directcontrols which, together with various indirect controls, were de-signed to achieve economic stabilization.1 In both instances, awage-price freeze was imposed when the country mobilized forwar. Productive capacity was being fully utilized, unemploymentwas low, and increased demands for goods and services coupledwith shortages or the anticipation of shortages had produced un-acceptable "demand-pull" inflation.

The inflation situation in the summer of 1971 was significantlydifferent from the wartime situations mentioned above. TheUnited States was winding down its involvement in the VietnamWar. It was a period of slack demand, idle productive capacity,and high unemployment (although the economy had definitelyturned upward into the rising phase of the business cycle). Andyet, to the dismay of many observers in our society, includingeconomists in and out of government, it was also a period ofexcessive inflation—an aftermath of the war-stimulated excessivedemand of 1966-1968, unrestrained by existing fiscal policy.

Containment of the destabilizing forces was first sought throughthe application of indirect controls, embracing first restrictive andlater expansive fiscal and monetary policies.2 The Administration's

1 For a discussion of the use of direct and indirect controls under wartime condi-tions, see Thomas B. Worsley, Emergency Economic Stabilization (Washington:Industrial College of the Armed Forces, 1971).

2 These policies operate by decreasing or increasing total demand and the effectivemoney supply of the economy, without interfering directly with the operation ofthe market mechanism and its system of making choices competitively. For a com-prehensive discussion of the role and use of these indirect stabilization instruments,see G. L. Bach, Making Monetary and Fiscal Policy (Washington: BrookingsInstitution, 1971).

474-893 O - 72 - 2


PRESIDENTS ECONOMIC PROGRAM

"game plan," involving use of fiscal and monetary instruments,however, failed to achieve an acceptable combination of reducedinflation and acceleration of the economy's economic growth rate.It was this shortfall in the operation of the indirect controls in anenvironment of comparative peace, rather than any parallels tothe conditions prevailing in 1942 or 1951, that accounted forPresident Nixon's recourse, in 1971, to a new economic policyembracing an integrated package of measures designed to bringthe Nation to higher employment, greater price stability, and astronger international position. The precipitating factor in thisdecision was the progressive deterioration of the U.S. balance ofpayments and attendant pressures on the dollar at mid-year.

The use of indirect stabilization tools in the period after WorldWar II was a recognition of the Government's responsibility evenin peacetime for helping to maintain sustained economic growthand stability.3 The remarkable achievements of the free enterprisesystem had always been marred by periods of economic stagnation,recession, and depression. Prior to the 1930's, cyclical fluctuationswith alternating periods of prosperity and depression had come tobe accepted as normal; and the Federal Government did littleto counter these. The Great Depression of the Thirties opened anew era in American economic thinking. That depression draggedon for a dozen years; at its lowest point, nearly one out of four ofthe labor force was unemployed. The Government's response tothis situation was to intervene extensively in the Americaneconomy; but even so, the depression lingered on until it wasended by the mobilization demands of World War II.

With the close of that war, Congress resolved to take moredirect responsibility for ensuring continued economic growth andchecking the recurrence of severe economic fluctuations. Thisresolution was embodied in the Employment Act of 1946, whichdeclared it to be "the continuing policy and responsibility of theFederal Government to use all practicable means . . . to promotemaximum employment, production, and purchasing power." TheAct ranks as a landmark in the history of American economicpolicy, symbolizing national aspirations and a new responsibilityof government to promote economic stability at high levels ofemployment. These objectives have had widespread support. Thedesign of policies that would achieve these objectives and reconcile

8 For a good compilation of select materials on this subject, see Economic Policiesfor National Strength: The Quest for Sustained Growth and Stability, Stephen R.Chitwood, ed. (Washington: Industrial College of the Armed Forces. 1968).



conflicts among them, however, has posed a challenge of formidableproportions.4

In the quarter century since the passage of the Employment Act,the indirect monetary, fiscal, and debt management policies werepreferred over direct controls as the appropriate tools for promot-ing economic growth and stability. Except for the Korean Waryears, direct controls were avoided. Each succeeding Federal ad-ministration, Republican and Democratic alike, acknowledged theGovernment's responsibility to maintain maximum employment,production, and purchasing power. There were differences in theextent of the commitment and in the particular policies andtechniques used, but each administration acknowledged the firstimportance of a strong, growing, and stable national economy.Indeed, such an economic environment had come to be viewed notonly as a domestic imperative, but also as essential to the stature,power, and security of the United States in the internationalarena.5

Efforts to promote economic growth and stability for much ofthe period following the enactment of the Employment Act werereasonably successful. The Nation avoided a major depression.Recessions were shallow and of short duration. Real output grewmarkedly, and until 1965 the rate of price increases (other thanthe surge in 1950-51—the first year of the Korean War) was keptwithin tolerable bounds.

But there were difficulties ahead in ensuring a continued full-employment and non-inflationary environment. The Nation in1965 already faced a serious balance-of-payments problem with noreal solution in sight. The increased influx of young people intothe labor force—a result of the baby boom in the late 1940's—threatened to create undesirable levels of unemployment. And thedeepening involvement of the United States in the Vietnam conflictincreased government spending which was not offset by increasedrevenues. These fiscal trends resulted in a Federal Governmentbudget deficit of $25 billion in Fiscal Year 1968.6 There was no

4 Lester V. Chandler, "Economic Stability," in The Nation's Economic Objectives,Edgar O. Edwards, Editor (Chicago: University of Chicago Press, 1964.)

5 Useful sources on direct and indirect stabilization tools are Maurice W. Lee,Toward Economic Stability (New York: John Wiley & Sons, Inc., 1966) ; Clifton H.Kreps, Jr., and Olin S. Pugh, Money, Banking and Monetary Policy, 2d ed. (NewYork: Ronald Press Co., 1967); Lester C. Thurow, ed., American Fiscal Policy(Englewood Cliffs, New Jersey: Prentice Hall, Inc., 1967).

6 Economic Impact of the Vietnam War, Special Report Series No. 5, Center forStrategic Studies, Georgetown University (New York: Renaissance Editions, Inc.,1967); U.S. Congress, Joint Economic Committee, Economic Effect of VietnamSpending, Senate Report No. 394, 90th Cong., 1st Sess. (Washington: GovernmentPrinting Office, 1967).



desire to invoke direct price and wage controls; at the same time,adequate fiscal and monetary restraints were applied too late tocope effectively with the inflation. Quasi-voluntary restraintsthrough wage-price guideposts and moral suasion by the Presi-dent introduced in the early sixties, had little real effect after 1965,in the face of the Vietnam War situation.7 At the time PresidentLyndon B. Johnson left office, the economy had been brought topractically full employment, but not without significant inflation.8

PROBLEMS BESETTING THE NIXON ADMINISTRATION

The Nixon Administration embarked on restrictive fiscal andmonetary policies in the hope of cooling the overheated economyand achieving gradual disinflation. Unemployment, which hadreached a low of 3.3 percent in February 1969, was expected toincrease somewhat, but the Administration accepted this as a"trade-off" for greater price stability. A gradual expansion of theeconomy would be sought after mid-1970. The Administrationrejected proposed remedies by way of direct wage and price controlsor an "incomes policy" such as the guideposts and moral suasionstrategy of earlier administrations.

The new administration was soon confronted, however, with aperverse combination of what came to be called "the worst of bothworlds"—recession and inflation. The economy began to slip intorecession in late 1969. Monetary and fiscal policies were reversedto provide stimulus in place of restraint, but recovery was too slow.In mid-1971, about one-fourth of the Nation's manufacturingcapacity was idle. Unemployment was estimated at about 6 percent

7 John Sheahan, The Wage-Price Guideposts (Washington: Brookings Institution,1967); George P. Shultz and Robert Z. Aliber, eds., Guidelines, Informal Controls,and the Market Place: Policy Choices in a Full Employment Economy (Chicago:University of Chicago Press, 1966) ; U.S. Congress, Joint Economic Committee, TheWage-Price Issue: The Need for Guideposts (Washington: Government PrintingOffice, 1968) .

8 Robert J. Gordon, "The Recent Acceleration of Inflation and Its Lessons forthe Future," Brookings Papers on Economic Activity, Arthur M. Okun and GeorgeL. Perry, editors. (1:1970) , pp. 8-47; Gottfried Haberler, Inflation: Its Causes andCures; With a New Look at Inflation in 1966 (Washington: American EnterpriseInstitute for Public Policy Research, 1966) ; Walter W. Heller, New Dimensions ofPolitical Economy (Cambridge, Mass.: Harvard University Press, 1966) ; Arthur M.Okun, The Political Economy of Prosperity (Washington: The Brookings Institution,1970) ; Arthur M. Okun and others, Inflation: The Problems It Creates and thePolicies It Requires, Charles C. Moskowitz Lectures, No. 10 (New York: New YorkUniversity Press, 1970).



of the Nation's labor force, and inflation remained near the 4percent annual rate level.9

By then, it was clear, the upward wage-price spiral had longlost any war-induced "demand-pull" character. Here was a newvirus of inflation. Few economists could speak with confidenceabout its causes or its cure. It seemed to have become a self-sustaining process, living on its own momentum under "cost-push"—a direct result of wage and price increases in excess of gainsin productivity. This new type of inflation seemed to lend supportto the thesis of John Kenneth Galbraith and others that marketcompetition was a thing of the past. The economy, they contended,had come to be dominated by giant firms and strong unions; andthe public was being victimized by their monopoly power.10 Howelse could one explain the fact that even in the midst of substantialunemployment the unions were demanding and getting wage in-creases in excess of average increases in productivity per man-hour?Or how could one explain that the prices of manufactured goodscontinued to rise while some 25 percent of the plant capacity forproducing these goods remained idle?

In the face of mounting inflation, the Nixon Administrationfound itself under pressure to adopt an incomes policy, eventhough experience with such a policy at home and abroad was farfrom a happy one.11 Nonetheless, the public was in a mood formore direct action to cope with the twin evils of inflation andunemployment. In the judgment of Herbert Stein, member ofPresident Nixon's Council of Economic Advisers and one of theprincipal architects of the Administration's stabilization program,the clamor for an incomes policy was in part, at least, politicallymotivated.

. . . The opposition to the Administration found it very convenient and effectiveto take this line because it made them the champions of price stability and fullemployment without having to accept any responsibility. As long as the Presidentdidn't accept the advice to use an income policy, he was responsible for the per-formance of the economy. And if he did take the advice, he would be responsiblefor the difficult task of making it work.12

Actually, the Nixon Administration did take several steps along

•On the Nixon economic game plan see Herbert Stein, "Beyond Inflation/'Remarks at the 17th Southern Trust Conference, Chattanooga, Tennessee, May15, 1969; Worsley, Emergency Economic Stabilization, pp. 95-107.

10 John K. Galbraith, "Wage-Price Controls—The Cure for Runaway Inflation,*'The New York Times Magazine, June 7, 1970.

11 On the experience of other countries with controls, see Lloyd Ulman andRobert Flanagan, Wage Restraint: A Study of Incomes Policies in Western Europe(Berkeley: University of California Press, 1971).

""What's Next for the American Economy," Remarks at Pepperdine University,Los Angeles, Calif., November 1, 1971.



the lines of an incomes policy. In an address to the Nation on June17, 1970, the President announced a number of actions "that willhelp to move us ahead more quickly towards our goal of fullemployment, economic growth, and reasonable price stability inpeacetime." Three actions were keyed to the fight against inflation:(1) Appointing a National Commission on Productivity, composed

of representatives from business, labor, the public, and govern-ment, to explore means of improving productivity in the economyand achieving "a balance between costs and productivity that willlead to more stable prices"; (2) Instructing the Council ofEconomic Advisers to prepare "inflation alerts," to be made publicby the Productivity Commission, spotlighting significant wage andprice increases and analyzing their impact on the general pricelevel; and (3) Establishing a Regulations and Purchasing ReviewBoard within the Federal Government to examine all governmentactions "to determine where Federal purchasing and regulationsdrive up costs and prices." U.S. import policy, the President added,would be reviewed "to see how supplies can be increased to meetrising demand, without losing jobs here at home/'

While taking these steps to combat inflation and calling onbusiness and labor to help hold down the cost of living, the Presi-dent was opposed to the imposition of wage and price controls,"however politically expedient that may seem."

Controls and rationing may seem like an easy way out but they are reallyan easy way into more trouble—to the explosion that follows when you try toclamp a lid on a rising head of steam without turning down the fire under thepot. Wage and price controls only postpone a day of reckoning, and in so doingthey rob every American of a very important part of his freedom.

This was not the time, the President asserted, for Congress to"play politics with inflation" by granting him standby authorityto impose wage and price controls. Rather, he hoped that Congresswould cooperate with him on a program specifically designed "tohelp the people who need help in a period of economic transitionfrom a wartime to a peacetime economy." While pressing for thatprogram, the President emphasized: "There is no more importantgoal than to curb inflation without permitting severe disruption.This is an activist administration, and should new developmentscall for new action in the future, I shall take the action neededto attain that goal." 13 Despite President Nixon's avowed opposi-

13 "Economic Policy and Productivity," The President's Address to the Nation,June 17, 1970, in Weekly Compilation of Presidential Documents, June 22, 1970, pp.774-781.



tion to direct controls, Congress enacted the Economic Stabiliza-tion Act of 1970, granting him standby powers to impose wage andprice controls.

The Council of Economic Advisers proceeded with inflationalerts—the first two in August and December, 1970. Leaders ofthe opposition in Congress, however, criticized these "after-the-facthandslappings," and urged the President to institute a 30- to 60-dayfreeze on wage and price increases, using his standby authority,and then to formulate guidelines for longer-range wage and pricerestraints.14

In a speech before the National Association of Manufacturers inDecember 1970, outlining stabilization actions and proposals tostimulate the economy toward full growth and employment, Presi-dent Nixon sharply criticized the bargaining processes and extra-ordinarily high wage settlements in the construction industry. Andin March 1971 he issued an Executive order, based on the Eco-nomic Stabilization Act of 1970, establishing a tripartite Construc-tion Industry Stabilization Committee to moderate wage-priceincreases in that industry.15

Along with these difficult problems on the domestic scene, theUnited States' international economic position approached a pointof crisis by mid-1971. Inflation at home was pricing the country'sgoods out of the world market and exacerbating the existing tradedeficit. The balance of payments, already unfavorable in the sixties,deteriorated sharply and dangerously in 1970-71. This erosionin the United States' trade and balance-of-payments positiontriggered and was accentuated by enormous outflows of short-termcapital, which placed severe strains on America's international

"Worsley, op. cit., pp. 103-104. For a discussion of the enactment of the EconomicStabilization Act of 1970, see below, pp. 14-17.

15 See "The President's Remarks" at the annual meeting of the National Associa-tion of Manufacturers in New York City, December 4, 1970, reprinted in WeeklyCompilation of Presidential Documents, December 7, 1970, pp. 1623-1629; ExecutiveOrder 11588, March 29, 1971 (Exhibit 2) . For a comprehensive report on thisprogram, see Harry Lenhard, Jr., "Economic Report—Construction Wage StabilizationEfforts Provide Tests for Nixon's Phase 2," National Journal, November 6, 1971.



financial status.16 This mounting financial crisis, Stein reflectedlater, dictated the timing of the decision to institute wage-pricecontrols and perhaps the decision to do it at all. As he put it:

. . . The outflow of dollars from the United States reached flood proportionsin the Summer (of 1971) , there was some loss of gold and a further and largerloss of gold was at least a danger. Some decisive action had to be taken on thatfront. The action taken was to close the gold window, suspending the con-vertibility of dollars into gold . . . The decision to close the gold window openedthe prospect of all kinds of panicky reactions including a massive flight fromthe dollar at home and abroad. Action that would unmistakably indicate thegovernment's determination to protect the real value of the dollar was needed,and nothing could serve this function so well as a wage-price freeze.17

THE DECISION AT CAMP DAVID

All the above mentioned considerations converged in the Presi-dent's decision, August 15, 1971, to change his economic "gameplan." That Sunday evening, after a busy weekend at Camp David,the President made a dramatic announcement of a "New EconomicPolicy" designed to achieve, as he told the Nation, "a new pros-perity without war." Such a program, he said, would require actionon three fronts—creating new jobs, halting inflation, and protectingthe position of the American dollar "as a pillar of monetarystability around the world." The range of actions taken and pro-posed that evening, the President observed, was "the most com-prehensive New Economic Policy to be undertaken by this Nationin four decades." 18

This momentous change in course was effected in a surprisinglyshort time and in complete secrecy. Only some two weeks beforethe August 15 announcement, Dr. Paul W. McCracken, Chairmanof the Council of Economic Advisers, had entered a strong rebuttalof John K. Galbraith and other advocates of wage-price controls.19

36 See Statements by Paul A. Volcker, Under Secretary of Treasury for MonetaryAffairs, before the Subcommittee on Internation Trade of the Senate Finance Com-mittee, September 13, 1971, and the Subcommittee on Foreign Economic Policy,House Foreign Affairs Committee, September 21, 1971; see also Paul W. McCracken,Chairman, Council of Economic Advisers, "Can Economic Stability and Progress BeAchieved?," Remarks before the Economic Club of Detroit, Detroit, Michigan,November 1, 1971; Current Foreign Policy—International Aspects of PresidentNixon's New Economic Policy, Department of State Publication 8619, EconomicForeign Policy Series 3, November 1971 (Washington: Government Printing Office,1971) ; Peter G. Peterson, "A Foreign Economic Perspective," and "The UnitedStates in the Changing World Economy: Statistical Background Material," bothdated December 21, 1971.

""What's Next for the American Economy," November 1, 1971.18 "The Challenge of Peace," address by the President on nationwide radio and

television, Sunday, August 15, 1971, White House press release.""Galbraith and Price-Wage Controls," Washington Post, July 28, 1971.

8



In the two weeks before the fateful weekend at Camp David, fewpeople had been privy to the President's determination on a newcourse of action. Necessary planning and studies proceeded secretlyin various agencies and offices of the Federal Government.20

Still, there were indications that the President was considering,if not actually moving toward, a change in policy. To be sure, onJune 29th Treasury Secretary John B. Connally announced thePresident's rejection of wage and price controls along with severalother proposals to stimulate the economy and curb inflation.21

Less than one month later, however, Federal Reserve Board Chair-man Arthur F. Burns urged the Administration to take furthersteps to control inflation. Testifying before the Joint EconomicCommittee on July 23, Burns said: "In my judgment, and in thejudgment of the Board as a whole, the present inflation in themidst of substantial unemployment poses a problem that tradi-tional monetary and fiscal remedies cannot solve as quickly as thenational interest demands/' He added:

The inflation we are confronted with has become deeply rooted since itsbeginning in 1965. The forces of excess demand that originally led to priceinflation disappeared well over a year ago. Nevertheless, strong and stubborninflationary forces, emanating from rising costs, linger on. I wish I could reportthat we are making substantial progress in dampening the inflation spiral. Icannot do so.

The Administration, Burns felt, should establish a wage-price re-view board and resort to compulsory arbitration to keep wagesand prices down in industries that especially affected the publicinterest.22

Though he kept reiterating his dislike for wage and price con-trols, President Nixon, at an impromptu news conference heldAugust 4th, indicated that he would reconsider his position if afull-scale Congressional debate convinced him that controls couldbe enforced without putting the economy in a straitjacket.

. . . with regard to wage-price boards, I have still not been convinced that wecan move in that direction and be effective. . . . As far as we are concerned, wehave an open mind in terms of examining various proposals to see if there is anew approach which we may not have thought of.

I have serious doubts that they will find such a new approach, but I do wantto indicate that we will examine it because we all agree that the wage-price

30 "The Presidency—Recollections of Camp David," National Journal, September18, 1971, p. 1934.

81 Congressional Quarterly Almanac, 92nd Congress, 1st Session . . . 1971 (Wash-ington: Congressional Quarterly, 1972), pp. 691, 692.

10 Ibid., p. 692.

9



spiral is a significant danger to this expanding economy. The question is whatdo we do about it, without going all the way to a totally controlled economy.28

The same day Treasury Secretary John B. Connally elaboratedon this theme and even posed some of the specific questions in theprice-wage control field "which need exploring." Among these, hetold the press, were:

1. How effective have various approaches been?2. What type of organization would be set up to administer the program?

Would there be only one national Board, or many regional and local ones? Howwould they be staffed, by volunteers, government employees?

3. How would legislation be implemented? How would it be enforced? Whatwould be the penalties for violation? Would there be roll back authority? Whatif workers strike against a decision? What type of appeal from decisions wouldthere be?

4. What will be the criteria for appropriate wage and price action? Howwould it affect escalator clauses in existing wage pacts? Will industries beallowed price increases where prices and profits are low to start? Would lowwage workers, say those at the poverty level, be denied wage increases?

5. How comprehensive should the scope of these measures be? Would interestrates, both rates paid and received, be controlled? If interest rates were controlled,would there also have to be controls on allocation of credit determining whowas or wasn't eligible? Would legal and medical fees be included? Taxes? Pricesof homes, businesses, stocks, bonds, tuition, rents, trade-in's?

6. What would be the effects upon our balance of trade? Would any formof controls build in a significant disadvantage for our goods relative to thoseimported into this country and to the competitive position of our productsabroad?

7. What happens when such legislation is no longer needed? How will wetell when such legislation is no longer needed?

"If these questions are objectively and exhaustively pursued,analyzed and discussed/' Connally asserted, "the result undoubtedywill be a clearer definition of terms and conditions presently underdiscussion and bring into clearer focus the actual economic situa-tion of the nation/' 24

Still, few even among the economists had any notion that aradical change in policy was in the offing. The White Housemoved with utmost secrecy for fear that premature disclosuremight have adverse effects both on the international and domesticscenes. Most of the individuals who worked on various parts ofthe new policy were not fully aware of what was involved untilthey heard or read the President's speech.

23 See Weekly Compilation of Presidential Documents, August 9, 1971, Vol. 7,No. 32, p. 1124. Extracts reprinted in U.S. News and World Report, August 16,1971, pp. 76-80.

* Department of the Treasury News Release, August 4, 1971.

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THE NEW ECONOMIC POLICY

The President's program had several objectives: (1) to deal withthe problem of inflation; (2) to stimulate the economy immedi-ately and improve efficiency and competitiveness over the long-run;and (3) to strengthen America's position in the world economy byimproving the international monetary and trading system andproviding relatively quick balance-of-payments benefits. Theseobjectives and the specific measures announced for their imple-mentation were deemed interlocking and mutually reinforcing. Intestimony before a subcommittee of the House Foreign AffairsCommittee, Paul A. Volcker, Under Secretary of the Treasury forMonetary Affairs, emphasized the interrelationship of the steps inthe domestic and international areas:

. . . success in the domestic elements of the program is essential to lasting successin the international sphere. Domestic stability is a prerequisite to internationalstability. If we do not resolve the problems of eliminating inflation and improvingour productive efficiency while creating more jobs at home, we will not maintainthe improved competitive position which is necessary to genuine and lastingimprovement in our international financial position.25

Indeed, Administration spokesmen asserted, each element of thePresident's program interlocked with other elements in such a waythat the effectiveness of the whole would be greater than the sumof the parts, taken individually.26

Specifically, the program consisted of the following:1) A 90-day freeze of all prices, rents, wages, and salaries.2) Creation of a Cabinet-level Cost of Living Council to make

the basic decisions concerning the 90-day freeze, the postfreezeeconomic stabilization program, and the eventual transition backto a free-market economy.

3) Temporary suspension of the full convertibility of the dollarinto gold, thus letting it "float" to its own level in relation toforeign currencies.

4) Imposition of a temporary surcharge on imports into theU.S., generally at a rate of 10 percent.

5) A recommendation for changes in the tax laws which would:a) restore, effective August 15, 1971, an accelerated investment tax

25 Statement before the Subcommittee on Foreign Economic Policy of the HouseForeign Affairs Committee, September 21, 1971.

28 Release of White House press conference of Hon. John B. Connally, Secretaryof the Treasury, Hon. George P. Shultz, Director, Office of Management and Budget,and Hon. Paul W. McCracken, Chairman, Council of Economic Advisers, August15, 1971; Volcker, Statement before the Subcommittee on International Trade of theSenate Finance Committee, September 13, 1971.

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credit at the rate of 10 percent for one year, followed by apermanent credit at the rate of 5 percent; b) repeal the 7 percentexcise tax on automobiles as of August 15, 1971; and c) advanceto January 1, 1972 the increase in personal income tax exemptionsthen scheduled to take effect a year later.

6) Reduction of Federal expenditures in Fiscal Year 1972 by$4.7 billion, to be achieved mainly by a 5 percent cut in Federalemployment and a postponement for 6 months of the Federal payincrease scheduled for January 1, 197?. Further, the Presidentproposed a 3-month deferral of the effective date of general revenuesharing, and a one-year postponement of welfare reform.27

THE WAGE-PRICE FREEZE

In this August 15 announcement, President Nixon emphasizedtwo characteristics of the freeze. First, it was to be temporary. "Toput the strong vigorous American economy into a permanentstraitjacket," he said, "would lock in unfairness and stifle the ex-pansion of our free enterprise system." Second, while Governmentsanctions would be invoked if necessary to support the freeze, thePresident did not anticipate the establishment of a huge price-control bureaucracy. Reliance would be placed on the voluntarycooperation of all Americans to make this freeze work. "Workingtogether," he was confident, "we will break the back of inflation,and we will do it without the mandatory wage and price controlsthat crush economic and personal freedom/'

Further insights into the plans for implementing the freeze werepresented in various briefings given immediately after August 15 byMr. Arnold Weber, who became the Executive Director of the Costof Living Council. His description may be summarized as follows:

a. The freeze order was comprehensive in scope.b. Although simple in concept, the freeze was inherently complex in imple-

mentation.c. The Administration did not institute a system of controls in the sense that

there were rules to permit the dynamic adjustment of wages and prices. Thesystem of controls that would permit such movement would fall in the planning

27 For a detailed exposition, see "Explanatory Material on the President's EconomicProgram," White House release, August 15, 1971. The freeze action was spelled outthe same day by Executive Order 11615, issued under the authority of the EconomicStabilization Act of 1970 as amended. The imposition of the temporary surchargeon imports was announced by Presidential Proclamation 4074, also on August 15,1971, by which the President declared a "national emergency" and called uponthe public and private sectors "to make the efforts necessary to strengthen the inter-national economic position of the United States."

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for Phase II [the postfreeze Economic Stabilization Program]. Clearly, the freezewas a "control" in the technical sense but not to the degree of establishing a setof criteria to permit adjustments.

d. The Cost of Living Council was also charged with the development ofPhase II policy.

e. The freeze was imposed with little warning because of the desire to avoidanticipatory wage and price increases. That is, if firms and unions were awarethat a freeze would be imposed some undoubtedly would have raised wages andprices in anticipation. This is what happened in the Korean War and it createda sharp sense of inequity while giving further impetus to inflation in the short-run.

f. Many policy decisions were still to be made. Policy had already beenpromulgated on some issues, such as the disallowance of deferred wage increasesand of price increases where substantial transactions had not occurred duringthe preceding 30 days. No one, however, as yet presumed to have answers to allthe questions that would arise.

g. Since the President did not want a large bureaucracy, and since part of theprogram involved a five percent cut in Government personnel and other budgetarystringencies, available resources had to be used. The Office of Emergency Pre-paredness was therefore given the responsibility for setting up the nationalservice and compliance machinery, with ten Regional Centers. An 'in-place'structure was thus used, and other departments and agencies were asked toprovide resources to augment this structure as needed.28

The Administration saw the freeze as providing "shock treat-ment" to the escalation of wages and prices. It was hoped that thistreatment would be temporary and would have beneficial thera-peutic effects. It was obvious from the first that, in an economy ascomplex and diverse as that of the United States, the freeze couldonly serve as a holding operation, administering a temporaryrestraint. Imbalances of all sorts would be frozen into the system,and the longer the freeze went on the more serious would becomethe resulting inequities. Complaints and petitions for relief couldbe expected to mount and require an ever-increasing apparatusfor administration and enforcement.

The Administration hoped for public acceptance of this tem-porary restraint until means could be designed to alter permanentlythe pressures that fanned the inflation. If the inflation were notto flare up anew, the freeze would have to be followed by astabilization program that would be fair to all segments of theeconomy and still be firm enough to be effective. Unless it werefair in dealing with the inevitable and irresistible pressures forchange, it would not be acceptable and it would not work. Andunless it had force behind it, it would suffer the same fate as othertoothless schemes tried in this country and abroad in the past.

28 Arnold R. Weber, University of Chicago Graduate School of Business, Chicago,111., Letter to G. A. Lincoln, Director, Office of Emergency Preparedness, January 7,1972.

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The President made clear from the outset that governmental re-straints upon free-market forces would be necessary until theinflationary pressures were brought under control. The Nation hadbeen operating under the freeze only some 3 weeks when thePresident announced before a special joint session of Congressthat the freeze would not be extended beyond the 90 days. But heassured the Congress and the American people that with the ex-piration of the freeze the necessary steps would be taken to preventthe recurrence of runaway inflation.

As we consider what follows the freeze, let us bear in mind that prosperity isa job for everyone—and that fighting inflation is everybody's business.

Let us remember, also, that nothing would be more detrimental to the newprosperity in the long-run than to put this Nation's strong free enterprise systemin a straitjacket of Government controls.

Regimentation and Government coercion must never become a way of life inthe United States of America. That means that price and wage stabilization, inwhatever form it takes, must be only a way station on the road to free marketsand free collective bargaining in a new prosperity without war.29

The challenge for the Administration was to make the freezework and, looking beyond its expiration on November 13, todesign a strategy of controls that would be equitable and still avoidthe central planning, regimentation, and compulsion that may beinevitable under emergency conditions but which would be clearlyunacceptable as a permanent feature.

Legislative Base

The President imposed the wage-price freeze under authorityprovided in the Economic Stabilization Act of 1970. First enactedon August 15, 1970, this Act was extended and amended on threeoccasions. At the time of the freeze, the Act was not due to expireuntil midnight April 30, 1972.30

The policy of having standby legislation to permit the impositionof a general freeze at the onset of an emergency had been thesubject of extensive Congressional study and debate. No President

29 A New Prosperity Without War and Without Inflation. Message from thePresident of the United States Concerning His Economic Policies, House Doc. No.92-162, 92nd Cong., 1st Sess., September 9, 1971 (Washington: Government PrintingOffice, 1971), pp. 3-4.

30 See P u b l i c Law 9 1 - 3 7 9 , 84 Stat. 799 (as a m e n d e d by P.L. 9 1 - 5 5 8 , 84 Stat. 1468;P.L. 9 2 - 8 , Stat. 13, and P.L. 9 2 - 1 5 , 85 Stat. 3 8 ) .

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had been disposed to ask for such authority, and until mid-1970,no Congress was disposed to grant it.31

In mid-1970, with the persistence of inflation despite fiscal andmonetary restraints, the issue again came up for Congressionalconsideration. A number of economists (notably John KennethGalbraith), labor leaders, mayors of large cities, and others cameout strongly for a temporary freeze on prices and wages. Somedirected their fire specifically at unions and large corporations,while others supported a more general approach to controls.82

Seemingly convinced that the indirect approach would not suf-fice, Congress moved to give the President standby authority touse a freeze as a check on inflation. In support of the legislation,House Majority Leader Carl Albert argued that the President andhis advisers "are prescribing the wrong medicine for the particularinflationary virus now infecting the Nation/' Restrictive fiscal andmonetary policies, Albert noted, were appropriate for combatingtraditional demand-pull inflation, but the cost-push inflation thenbesetting the country required the imposition of direct controls.33

On August 15, 1970, the President signed the measure into law,though he gave notice that he did not want the freeze authorityand would not use it. Were it not for the need to renew someimportant provisions of the Defense Production Act, Nixon said,he would have vetoed the bill. A freeze on wages and prices, hesaid, "simply does not fit the economic conditions which existtoday." If Congress felt that wage-price controls should be manda-tory, the President added, it should "face up to its responsibilitiesand make such controls mandatory." 34

The Act authorized the President to "issue such orders andregulations as he may deem appropriate to stabilize prices, rents,wages and salaries," but not at levels below those prevailing onMay 25, 1970. Such orders and regulations, the Act stipulated,"may provide for the making of such adjustments as may be neces-

81 Bernard M. Baruch, Chairman of the War Industries Board in World War I,was the leading exponent of standby authority and fought for it consistently overthe years. For Baruch's proponency of this concept, see Harry B. Yoshpe, A Voicein the Wilderness: Baruch's Proposals for an Overall Price Ceiling and StandbyControl Authority. (Washington: Industrial College for the Armed Forces, March1964) (Publication No. R-232). For a discussion of a Congressional attempt tolegislate standby authority early in 1953, with the lifting of price and wage controlsunder the Defense Production Act, see ibid., pp. 84-91; see also "The Question ofStandby Controls for Emergencies," Ch. IX in Emergency Economic Stabilization,Harry B. Yoshpe, editor (Washington: Industrial College of the Armed Forces,1964) pp. 91-98.

^Worsley, Emergency Economic Stabilization, pp. 100-101.88 Congressional Record, July 31, 1970, p. H7508.84 Congressional Quarterly Almanac, 91st Congress, 2nd Session, 1970 (Washing-

ton: Congressional Quarterly, Inc., 1971), p. 435.

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sary to prevent gross inequities." Willful violations of any ordersor regulations were made punishable by fines up to $5,000, andinjunctions might be obtained to enforce them.

An amendment to the Economic Stabilization Act, adopted onMay 18, 1971, precluded the President from singling out "a par-ticular industry or sector of the economy upon which to imposecontrols" unless he made a specific finding that the wages or pricesin that industry or sector had increased at a rate which was grosslydisproportionate to the rate for the economy as a whole. Thelegislators imposed this limitation on the President's power becausethey had reservations about applying specific controls to a singleindustry, as the President had done in March 1971 with respectto union-negotiated wages in the building construction industry.Workers subject to wage controls, the Congress feared, would haveno protection against the continued rise in the cost of living. Andan industry subject to price controls would lack protection againstincreases in the prices of products or materials it purchased. Forthese reasons, sponsors of this legislation blocked the Presidentfrom applying controls to any one sector of the economy.

The economic stabilization legislation continued to be a matterof political dispute. Before its enactment, President Nixon hadstated emphatically that he would not take the Nation down theroad of wage and price controls. Actually, direct controls had beenno less repugnant to the Johnson Administration. As early as thewinter of 1967-68, there was speculation in the press and hints bysome public officials that if the inflation continued or got worse,the President might seek authority to impose wage and price con-trols. There were then, as later in the Nixon Administration*divergent views as to how the growing inflation might be bestrestrained. Most economists in and out of the Government, how-ever, continued to view direct controls over prices and wages asthe tools of last resort.35 The 1968 Report of the Council ofEconomic Advisers made clear the Johnson Administration's op-position to wage-price controls:

While such controls may he necessary under conditions of an all-out war, itwould be folly to consider them as a solution to the inflationary pressures thataccompany high employment under any other circumstance. They distort resourceallocation; they require reliance either on necessarily clumsy and arbitrary rulesor the inevitably imperfect decisions of government officials; they offer countless

35 Chamber of Commerce of the United States of America, "What's the Issue,"transcript of radio broadcast, Mutual Broadcasting System, December 7, 1967; seealso A Perspective on Wage and Price Controls, proceedings of a conference heldby the Chamber of Commerce of the United States of America, April 5, 1968.

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temptations to evasion or violation; they require a vast administrative apparatus.All these reasons make them repugnant. Although such controls may be un-fortunately popular when they are not in effect, the appeal quickly disappearsonce people live under them.36

Subsequently, Republicans called the freeze measure a "politicalcharade" intended to embarrass the President. By early 1971, how-ever, the Administration supported the extension of this standbyauthority.37

The Freeze Order

Executive Order 11615, promulgated by the President on August15, 1971, established a general freeze on prices, rents, wages andsalaries. These were to be "stabilized" for 90 days at levelsno greater than the highest of those pertaining to "a substantialvolume of actual transactions" by the seller of commodities orservices during the 30-day period ending at midnight, August 14,1971, for the same commodities or services. If no transaction oc-curred in that period, the ceiling was to be "the highest price,rent, salary or wage in the nearest preceding 30-day period inwhich transactions did occur." The freeze order covered all com-modities and services with the exception of raw agricultural prod-ucts. Persons selling or providing commodities or services were tomaintain records of their highest price or recent charges during thespecified base period, and were to have these available for publicinspection. Violators of the freeze were made subject to injunctionactions by the Department of Justice or to a fine of up to $5,000for each violation.

It is significant to note that Executive Order 11615, based as't was on the Economic Stabilization Act of 1970, covered onlyprices, rents, wages, and salaries; it did not cover interest rates,dividends, or profits. Extension of the freeze to these areas wasconsidered at the August 13-15 meetings at Camp David, but wasrejected. Whatever the merits of this decision, critics of the Ad-ministration's program charged that these omissions made it evi-dent that the entire program was slanted in favor of big business.

Asked about "a freeze on interest" at the White House newsconference on August 15, just before the President's announce-ment, Treasury Secretary Connally replied:

. . . We didn't include the freeze on interest for the simple reason that it wasthe combined judgment of everyone that it might work at cross-purposes. . . . We

88 Annual Report of the Council of Economic Advisers, 1968, p. 119."Worsley, op. cit., p. 102.

17

474-893 O - 72 - 3



did not do it because we didn't know how to effectively do it. It is almost im-possible to make it apply to interest rates.38

The Administration in mid-August 1971, Connally later indicated,felt that interest rates in the 30 days preceding the freeze were toohigh, and those existing on May 25, 1970—the basic base period-were even higher. Any announced ceilings on interest rates, Ad-ministration spokesmen feared, might rapidly become "floors," ashad been the case in the past. "We did not want to risk stabilizinginterest rates at those high levels," Connally said later. "We tookthe risk of excluding interest from the freeze and we were right."89

While interest was thus excluded from the freeze, Connally madea special plea to lending institutions to go along with the anti-inflation program. "We certainly expect that they will live up tothe wage-price freeze in the interest they charge," he said. "It's myhope that interest rates will come down." 40

Dividends were, like interest, excluded from the freeze order.But in his address of August 15, announcing the freeze action,President Nixon did call upon corporations "to extend the wage-price freeze to all dividends." 41 The Cost of Living Council putout guidelines on the subject; and at a news conference heldSeptember 28, 1971, Commerce Secretary Maurice H. Stans re-ported that pledges had been obtained from all but 38 of 1,250 ofthe Nation's largest corporations to refrain from dividend increasesduring the freeze.42

In the case of profits, the Administration opposed the impositionof an excess profits tax. Profits were declining at the time anyway,and the Administration feared that a freeze on profits would dis-courage the capital investment needed to create new jobs.43 Evensome Democratic economists like Gardner Ackley and ArthurOkun took a dim view of an excess profits tax.44 President Nixon'sattitude was clear on this point. In his address to the Nation on

"White House press conference cited in note 26 above. The Credit Control Actof 1969 (Public Law 91—151) did authorize the President to delegate to the FederalReserve Board authority to regulate interest rates as part of a credit control pro-gram, which may be instituted under certain circumstances. These circumstancesrequire a Presidential determination that controls are necessary to prevent inflationgenerated by the extension of credit in an excessive volume. Such a determinationdid not appear to be justified under the conditions in the Summer of 1971.

89 Statement before the House Banking and Currency Committee, October 27,1971.

40 Bureau of National Affairs, A Special Report, August 16, 1971.41 "The Challenge of Peace," August 15, 1971.48 New York Times, September 29, 1971.48 "The Presidency—Recollections of Camp David," National Journal, September

18, 1971, p. 1934; "Putting a Lid on Profits: Who Gets Squeezed?/' U.S. News andWorld Report, November 29, 1971, p. 551.

44 "The Freeze: Planning for Thin Ice," Newsweek, September 13, 1971, p. 83

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October 7, 1971, announcing his decisions on the postfreeze pro-gram, he explained why he would not fix limits on profits.

. . . Many of my good friends in the field of politics have advised me that theonly politically popular position to take is to be against profits.

But let us recognize an unassailable fact of economic life. All Americans willbenefit from more profits. More profits fuel the expansion that generates morejobs.

More profits means more investment, which will make our goods morecompetitive in America and in the world.

And more profits means there will be more tax revenue to pay for the pro-grams that help people in need. That's why higher profits in the Americaneconomy would be good for every person in America.

With the Government's putting a lid on wages and other costs,however, it was conceivable that in some circumstances exorbitantprofits could be made. Rather than tax such excess or "windfall"profits, Nixon expected that under governmental policy in thePhase II program business "should pass along a fair share of itscost savings by cutting prices.'*45

APPARATUS FOR ADMINISTERING THE FREEZE

The Cost of Living Council

By Executive Order 11615, the President established the Cost ofLiving Council (CLC) and delegated to it the authority conferredon him by the Economic Stabilization Act of 1970. The Presidentdesignated Treasury Secretary John B. Connally to head the Coun-cil. A Texas Democrat, Connally had joined the Nixon Administra-tion in February 1971 and soon emerged as the President's leadingspokesman on the economy.46

Executive Order 11615 further designated a Special Assistant tothe President to serve, under the direction of the Chairman, asExecutive Director of the Council. The President appointedArnold R. Weber to this job. A 42-year-old economist from the

45 See text of President Nixon's address in New York Times, October 8, 1971.46 Other members of the Council included the following: Dr. Paul W. McCracken,

Chairman of the Council of Economic Advisers, designated as Vice Chairman;Clifford M. Hardin, Secretary of Agriculture; Maurice H. Stans, Secretary of Com-merce; James Hodgson, Secretary of Labor; George Romney, Secretary of Housingand Urban Development; George P. Shultz, Director, Office of Management andBudget; George A. Lincoln, Director, Office of Emergency Preparedness; and VirginiaH. Knauer, Special Assistant to the President for Consumer Affairs. Dr. Arthur F.Burns, Chairman of the Board of Governors of the Federal Reserve System, wasdesignated to serve as "adviser" to the Council. Executive Order 11615 inadvertentlyomitted the Secretary of Housing and Urban Development from the Council's mem-bership; this was corrected by Executive Order 11617, dated September 2, 1971.

19



University of Chicago, Weber had joined the Nixon Administra-tion in January 1969 as Assistant Secretary of Labor for Manpower.In July 1970 he was appointed Associate Director of the Office ofManagement and Budget. Weber was at the point of returning tohis teaching post when he was recruited for the Council job.

Along with the delegation of the President's powers under theEconomic Stabilization Act of 1970, Executive Order 11615 speci-fied the following responsibilities of the Council:

a) Development and recommendation to the President of "addi-tional policies, mechanisms, and procedures to maintain economicgrowth without inflationary increases in prices, rents, wages, andsalaries after the expiration of the 90-day period specified in SectionI of this Order."

b) Consultation with labor, industry, business, farm, and publicrepresentatives concerning the design of such policies, mechanisms,and procedures.

c) Guidance in all its actions by "the need to maintain con-sistency of price and wage policies with fiscal, monetary, inter-national and other economic policies of the United States/'

d) Informing the agricultural, industrial, and labor sectors andthe public at large concerning "the need of controlling inflation"and encouraging and promoting voluntary action to that end.

The Council was thus to be the policy body for the freeze pro-gram. It could define terms, make exceptions or exemptions, issueregulations or orders, and take other necessary actions. The Councilwas authorized to redelegate any of its authority and to call onother Federal or State agencies for help in administering the order.Further, the Council could require the maintenance of appropriaterecords or other evidence needed in carrying out the provisionsof the Executive order and request the submission of such informa-tion for examination.

To assist the Council in day-to-day policy and administrativedecisions, Connally established an Executive Policy Committee(EPC) under the chairmanship of the Council's Vice Chairman,Dr. McCracken. Other members were Weber, George A. Lincoln,Director of the Office of Emergency Preparedness, and Charls E.Walker, Under Secretary of the Treasury. Meeting almost daily,EPC reviewed and resolved many policy issues and presented othersto the Council for consideration in developing freeze policies andregulations.

20



OEP: The "Operating Agency" for CLC

At the White House press conference on the evening of August15, Connally mentioned the creation of the Council to supervisethe freeze and the decision to "delegate" the administrative man-agement task to the Office of Emergency Preparedness. The factthat OEP had only about 300 people in its employment, Connallyemphasized, should make it evident that "we don't anticipate thatthere is going to be any building up of any huge bureaucracythroughout the country" to administer the freeze. "It is a differentanimal entirely," he added, "from wage-price controls as we norm-ally speak in those terms." 47

OEP Director George A. Lincoln was spending the weekendon his ranch near Denver, Colorado, when he got word fromthe White House late on August 14 to return to Washington thefollowing day. He came back in time to alert his staff and RegionalDirectors to the impending message from the President and thecall to action. Thus, "without warning," one periodical noted,"President Nixon plucked the tiny agency out of the anonymity ofthe U.S. Government Organization Manual to supervise the wage-price freeze." 48 In the same vein, another periodical characterizedthe assignment of "so vast and complex an undertaking" to Lincolnand his "tiny cadre of trouble-shooters," as a seemingly "implausi-ble piece of casting." The article continued:

. . . The OEP is a flyspeck on the Federal table of organization—an obscurebureaucratic cranny with a meager staff (308) , a modest budget ($9.5 million) ,an ancient headquarters (the Army of the Potomac used it during the Civil War)and only eight regional offices in all the wrong places (e.g., Olney, Md., Denton,Texas, and Maynard, Mass.) . Its expertise, moreover, consists mostly of directingrecovery operations after hurricanes, tornadoes and earthquakes and makingcontingency plans for stabilizing the economy in case of nuclear war. Its director-ship was once one of Washington's least glamorous jobs. But Mr. Nixon hasgrown fond of his man Lincoln, a retired Army brigadier general of 64 with animposing personnel file (Rhodes scholar, West Point professor, co-author of fivebooks) and a deceptively countrified manner. And OEP's lean, limber lookobviously appealed to the President in contrast to the elephantine price-controlbureaucracies of the World War II and Korean War eras.49

Addressing the National Association of Food Chains some threeweeks after OEP's assumption of this management task, OEP Di-rector Lincoln observed, "I have . . . been asked why we are socharged." His response was as follows:

. . . Perhaps by a process of elimination. We had the only economic stabilizationplanning mission in Government—for use in wartime. So we had a little capital.

47 White House press conference cited in note 26 above.48 Time, August 30, 1971.

49 "OEP: Disaster is Its Speciality," Newsxueek, August 30, 1971.

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We are a part of the President's Executive Office. We are accustomed to callingon and coordinating the great Federal agencies in connection with natural disasteroperations. We are accustomed to getting to the emergency situation quickly and,perhaps equally important, getting out quickly. We have no vested interest instaying with an emergency task after it is done.50

Lincoln had many years' experience as a national security spe-cialist, defense economist, and military planner. He served inseveral strategic planning and military-political-economic assign-ments during and after World War II under Generals George C.Marshall and Dwight D. Eisenhower, and as an adviser to severalPresidents and Secretaries of State and Defense. Just prior to hisappointment as Director of OEP in January 1969, Lincoln retiredfrom the Army. He came to OEP from the faculty of the U.S.Military Academy, where he had headed the Department of SocialSciences. In his capacity as Director of OEP, he was a statutorymember of the National Security Council and assisted the Presidentin coordinating the Federal response to economic crises and naturaldisasters, and in planning the national non-military defense effortstoward meeting contingencies ranging from limited war to all-outnuclear attack.

Lincoln had gained a reputation as an able administrator. Hedeveloped a broader concept of OEP's mission in the area ofpreparedness for, and management of, emergencies involving thePresident and his Executive Office. This "crisis management"extended to actively involving OEP in current emergencies. Thus,by special Presidential assignment, Lincoln was charged with policydirection, coordination, and surveillance of the Nation's oil importprogram, with the advice of an interagency committee under hischairmanship. Similarly, he came to chair a Joint Board of FuelSupply and Fuel Transport, which identified short-term energyfuels and power problems and coordinated Federal remedial action.Also, in the face of recurring rail strikes, Lincoln, under assignmentfrom the President, developed the priorities to guide the Secretaryof Transportation in allocating means of transportation and direct-ing the movement of essential goods. OEP's effectiveness as atroubleshooter in these crisis situations unquestionably had animportant bearing on the President's decision to charge the agencywith the management of the freeze program.

Over the years, too, the OEP's Economic Stabilization Division,under the leadership of Mr. Leonard A. Skubal, had been develop-ing and coordinating government plans for maintaining and

50 Remarks before the National Association of Food Chains, September 8, 1971.

22



stabilizing the civilian economy under emergency conditions. Theseplans included measures for both direct and indirect controls, draftlegislation, the charting of the organizational structure, andpreparations to staff it. The planning in the stabilization area, asin all other fields of the OEP mission, was in terms of three prin-cipal contingencies: international tension that would call for sometentative measures; so-called "limited war" mobilization; and gen-eral war, including massive nuclear attack.

The OEP Economic Stabilization Division developed and refinedgeneral programs for direct stabilization controls in limited warsituations, as well as preparedness capabilities for the administra-tion of controls at State and local levels in nuclear attack situations.With the advice and assistance of consultants and advisory com-mittees, OEP staffers developed concepts for standby controls inspecific industries, with regulations tailored to their unique char-acteristics. Much was done to design the structure and plan forthe manning and logistic support of the Economic StabilizationAgency proposed for activation in an emergency. The Division'splans contemplated a general freeze or stop order covering allprices, wages, salaries, and rents immediately upon the onset of asubstantial mobilization, to be followed by the spot handling ofurgent problems arising under the freeze and by the rapid develop-ment of standards for adjustments, exemptions, and refinementsthat would be required.

The plans and programs that the Economic Stabilization Di-vision had on hand had been prepared primarily upon the basisof wartime scenarios. They had only to be adapted to meet theneeds of the non-mobilization situation in which they now wereto be used. The advance work of the OEP planners, therefore,provided valid concepts that were useful from the outset.51

The Office of Management and Budget and the Council of Eco-nomic Advisers brought Skubal into the planning prior to thefreeze. He served as a member of a task force that developeda number of papers reviewing and assessing U.S. and foreign ex-perience with wage-price constraints, the peculiar set of factorswhich induced the President to create the Construction Industry

61 Enclosure to Memorandum, W. C. Truppner, Assistant Director for ResourceAnalysis, to Laurent E. Morin, Planning Review, November 16, 1971, Subj: After-Action Reports on OEP's Role in the Wage-Price Freeze; F. Joseph Russo, "PhaseII of the New Economic Program," presentation at the University of Denver Sym-posium, Denver, Colo., November 18, 1971; Darrell M. Trent, Deputy Director,OEP, Statement before the House Armed Services Committee's Subcommittee onCivil Defense, December 9, 1971; Leonard A. Skubal, "Critique of OEP's Role andPerformance in the Economic Stabilization Program of the New Economic Policy,"January 1972.

23



Stabilization Committee, and problems and alternatives in wage-price stabilization. The group also set out the major options in theform of guidelines with explicit criteria: a wage-price reviewboard, a temporary freeze, selective industry actions, and generalwage-price controls. For each of these options, they set forth theirviews on structure, implementation, required resources, anticipatedoperational problems, and probable effectiveness.

In presenting the staffing requirements in connection with thebasic options, the task force proposal ranged up to 13,000. ThePresident, in choosing his options, settled on a Phase I staff of fewerthan 4,000. Using OEP's preparedness concepts, Skubal made auseful contribution to the work of the task force in shaping thePresident's freeze program. He had a direct role in the design ofstabilization regulations and in shaping some of the thinking thatwent into the organizational structuring and policies of the freezeand the postfreeze stabilization programs.52

OEP's activities in managing the freeze began immediately afterthe President's August 15th pronouncement. On August 17, theCost of Living Council formally delegated to the Director of OEP"responsibility and authority to implement, administer, monitor,and enforce the stabilization of prices, rents, wages and salaries," asdirected by Section 1 of Executive Order 11615. Significant policydecisions were to be made only after consultation with the Council.Other departments and agencies were expected to provide necessaryassistance, and the Director was authorized to redelegate admin-istrative and operative functions relating to the implementation ofthe program.53

OEP was thus charged with managing the freeze. It was au-thorized to:

1) Provide overall management and direction from Washingtonfor the operations based there and for field operations, generallythrough ten Regional Offices, which were to work in cooperationwith 360 local offices of the Internal Revenue Services (IRS),Treasury Department, and 2,819 local offices of the AgriculturalStabilization and Conservation Service (ASCS), Department ofAgriculture.

2) Develop, in conjunction with other Federal agencies, criticalpolicy questions and issues and suggest to CLC the answers tothese questions and issues.

82 Interviews with Leonard A. Skubal, September 21, 1971, and January 14, 1972;"Pre-Freeze Activity," Enclosure to Memo, Truppner to Morin, November 16, 1971,Subj: After-Action Reports on OEP's Role in the Wage-Price Freeze.

68Cost of Living Council Order No. 1, August 17, 1971, Subj: Delegation ofAuthority to the Director, Office of Emergency Preparedness.

24



3) Respond to queries at both the national and local levels onthe application and interpretation of policy.

4) Ensure, through the OEP network of Regional Offices andwith the assistance of IRS, that there was compliance with thewage-price-rent freeze, and enforce compliance when necessary.

5) Receive and consider requests for exceptions and exemptions.6) Keep the public fully and promptly informed of the freeze

policies and procedures, the decisions made, and the guidelinesdeveloped in response to questions and answers raised, and gaingeneral public understanding and acceptance of the program.

7) Monitor the progress of the program, determine how welland how rapidly requests for exceptions and exemptions were beingprocessed and how promptly inquiries were being answered, andmaintain a full record of these for analysis and formal reporting.

8) Collaborate with other Federal agencies in planning the post-freeze policy and procedures and give advice and assistance to theCouncil in this regard.

The role of OEP in these mission areas will be the subject ofsubsequent chapters in this history.

25


Organization: Structure, Staffing,

Support

UNDERLYING CONCEPTS

Four factors influenced the development of OEP organizationand staffing arrangements for administering the wage-price-rentfreeze: the nature of the task, the environment of the freeze, theresources available to do the job, and the Director's concept ofcrisis management.

Nature of the Task

OEP's mission was to administer a freeze on wages, salaries,prices, and rents; its principal task was to hold the line for 90days while the Administration was preparing for the followingstage. Although the freeze lacked the complexity of a system ofdetailed controls with provisions for extensive adjustments tochanging economic conditions, its administration was still a massiveundertaking. Moreover, the task was complicated by the continuingrequirements of OEP's ongoing programs, some of which were tooimportant to be shunted aside, even for a few days. Because ofthese other responsibilities, the Director wore two distinct opera-tional hats: one as administrator of the freeze and the other asDirector of OEP's regular programs. For this reason, he wantedOEP's organization and staffing arrangements during the 90-dayfreeze to reflect two major considerations: they had to expedite theachievement of freeze objectives, and they had to permit OEP'smost important regular programs to continue without major in-terruptions.

Environment of the Freeze

Coming as it did in a period of relative international calm (and

26


ORGANIZATION

not in the midst of a large-scale war or in the wake of a nuclearattack as contemplated in OEP's economic stabilization planning),the freeze had no rival for public attention. Of particular momentwas the fact that it was the first time in the history of the UnitedStates that wages and prices had been frozen for reasons other thanthe economic dislocation caused by large-scale military procure-ment in wartime.

The public generally welcomed the freeze as a positive step bythe President to come to grips with the continuing problems ofinflation. Support of the program, however, was not unanimous.Spokesmen for organized labor, who had been urging the Presidentto impose direct controls on the economy, claimed that the freezeimposed inequitable sacrifices on working people. The reactionof some Governors, mayors, and other political leaders was in-fluenced by considerations of how the freeze would affect theirparticular responsibilities and constituents. The media saw thefreeze as the outstanding news event of the year and reacted ac-cordingly. Everyone—business leaders, labor spokesmen, Congress-men, government officials, small businessmen, landlords, tenants,school teachers, housewives, and reporters—looked to Lincoln andhis small agency for answers to their questions about the freeze.

Many of the questions that deluged OEP on August 16 and thenext few days reflected concern over the unequal impact of thefreeze on individuals and different sectors of the economy. Thecomplex U.S. economy is constantly changing and the freeze un-avoidably caught some individuals, businesses, and industries in aless advantageous position than others. The freezing of this im-balance for 90 days inevitably produced inequities and hardships.1

Since the success of the freeze depended largely on voluntarycompliance, it was imperative that the public be strongly en-couraged to continue to support the freeze despite the unevenhardships resulting from it. An immediate and overriding task wasto convince the public that the freeze was necessary to the economichealth of the Nation and that it would be administered fairly,consistently, and effectively. Lincoln saw his part of this taskmainly in terms of: rapidly developing rules more specific thanthe generalities in the legislation and Executive order; quicklydisseminating information about the freeze to the public; encourag-ing voluntary compliance; receiving, investigating, and forwardingcomplaints of noncompliance; and placing pressure on those whodid not comply voluntarily.

1 See pp. 97-98, 115-116.

27


ORGANIZATION

Resources Available for the Task

Because of the President's opposition to building up a largebureaucracy, Lincoln knew he would have to achieve the desiredpublic impact and other aspects of his mission with the resourcesof his small agency, supplemented by the resources available tohim as a member of the President's staff. These resources weresubstantial. With the cloak of Presidential authority, Lincoln'sstrength was not measured by the small number of people in hisagency; it was measured by the size of the mission assigned himand by the resources which he could draw from the departmentsand other agencies of the U.S. Government. During the first fewdays of the freeze, Lincoln tapped this vast Federal reservoir andsoon found that it would supply the resources needed to supple-ment those of his own agency.

Even the resources of his own agency were more valuable thanits small size might indicate to the casual observer. Among his staffof some 300 persons (professional and clerical) were many withextensive experience in coordinating and managing governmentprograms to cope with wartime emergencies, natural disasters, railstrikes, national fuel and power shortages, and other crises. Somestaff professionals were specialists in particular areas, but mostwere generalists, able to operate effectively in crisis situations ofvarying kinds. Further, the agency and its staff were experienced inworking with members of other Federal agencies as a team inplanning for and reacting to emergency situations and had a clearlydefined and periodically exercised cross-agency emergency network.OEP had an Operations Center and a communications systemwhich were immediately modified to cope with the new demandsput upon them. Finally, OEP's small field organization was highlyexperienced in interagency coordination, in dealing with Stateand local governments, and in adapting to emergencies.

The situation had required the President to depend on an exist-ing agency to administer the freeze—one that could start operatingon the day following his declaration. Fortunately, OEP provedto be such an agency. As Lincoln expressed it, "When the freezehit, OEP was already an operating outfit, and I was confident thatmy people could do the job/' 2

Lincoln's Concept of Crisis Management

During his 2i/£ years as Director, Lincoln had oriented OEP

2 Lincoln, interview with OEP historical staff, February 3, 1972.

28


ORGANIZATION

toward an operational approach that emphasized quick conversionof activities and resources from a normal to a crisis footing and haddeveloped a staff trained and experienced in his concept of crisismanagement. He had come to believe that effective management ofa crisis situation depends on action consistent with certain prin-ciples. Briefly, these principles are:

1. Make your mission in the crisis the central guide to youractions—focus on the objective.

2. Respond to the crisis quickly and positively and keep theaction moving—don't let the workload pile up—stay up on thepower curve.

3. Keep the future open as long as you can; don't limit youroperations or field of maneuver until you have to.

4. Make your administration fair, consistent, and credible tothe public.

5. Exercise central control and establish single, direct lines ofcontrol over the resources under your direct command.

6. Delegate to other agencies responsibility for managing theirown applicable resources while maintaining a strong coordinatingrole over the use of these resources.

7. Delegate responsibility for routine matters to lower echelonswhen feasible.

8. Keep organizational changes to a minimum, making onlythose necessary to accommodate important changes in your mis-sion—adapt what exists rather than trying to create something new.

9. Provide for effective coordination at all echelons. Teamworkis the key to success. Stress routine lateral coordination as well asthat emanating from higher levels.

10. Dispatch immediately all information to everyone who needsit.

11. Insure continuous, reliable, and fast feedback from youroperations. Follow up quickly to avert bottlenecks and crises.

12. As the one in charge, keep yourself free to orchestrate theentire operation—don't get mired down in details.

Lincoln's implementation of these concepts of crisis managementwill be noted from time to time in this and succeeding chapters ofthe history.

NATIONAL OFFICE ORGANIZATION

Lincoln's task was complicated by his continuing responsibilityfor a wide range of functions other than the freeze. OEP's normal

29


ORGANIZATION

role includes: developing policy, plans, and programs to deal withwartime emergencies, certain peacetime crises, and natural dis-asters; coordinating and guiding the activities of Federal agenciesin preparing for and dealing with these emergency and crisissituations, including plans for continuity of government and forresource management; and, in the case of natural disasters, manag-ing the President's Disaster Relief Fund. The Director of OEPalso has major responsibilities involving oil import policy and re-lated energy problems, stockpiles of strategic and critical materials,and industrial mobilization planning, as well as those flowing fromhis membership on the National Security Council.

To carry out these responsibilities, Lincoln had developed aheadquarters organization with command lines and functionalassignments as shown in Figure 1. This organization had servedhim well, and he wanted the freeze to disturb it as little as possible.In his opinion sudden and drastic organizational changes confusethe staff, confuse the many Federal agencies with routine relation-ships with OEP, and result in lost motion. Also, he foresaw thatthe full impact of OEP's new mission and the resources neededto carry it out would not be clear for several days. Meanwhile, hewanted to avoid precipitate actions that would narrow his field ofmaneuver.

At the same time, Lincoln recognized that OEP's normal organi-zation was not adequate for administering the freeze. He was alsoaware that OEP's prior planning for economic stabilization, whilevaluable in several respects, did not offer a ready solution to hisorganizational problem, particularly at the national level. Thisplanning had been directed toward a wartime situation, eithernuclear or limited, and contemplated establishment of an Office ofDefense Resources (ODR) at the apex of a system of controlagencies (including an Economic Stabilization Agency) superim-posed on the regular Federal structure.3 Such a system would takemonths to activate. Lincoln needed an immediate solution, andhe decided for the moment to solve his problem by setting up aprovisional organization to keep things under control while a moresuitable organization was being devised in the light of emergingdevelopments.

The provisional freeze organization with which OEP set forthon August 16 was roughly its regular organization, with importantchanges. One of the first and most important of these changes was

*See Office of Defense Resources, Resource Mobilization for Limited War, July1966, and the Manual for Regional Emergency Operations, Economic StabilizationAgency, August 1969.

30


FIGURE 1

OFFICE OF EMERGENCY PREPAREDNESS

DIRECTOR

Deputy Director

ASSISTANT DIRECTOR

GENERAL COUNSELASST. TO THE DIRECTOR

FORPLANNING REVIEW

ASSISTANT DIRECTORFOR

GOVERNMENT PREPAREDNESS


DISASTER PROGRAMS

1PLANS AND

PROCEDURESDIVISION

1EXERCISES AND

FACILITIESDIVISION

1IMPLEMENTATION

AND REVIEWDIVISION

1ECONOMIC

STABILIZATIONDIVISION

1DISASTER

PREPAREDNESSDIVISION

1DISASTER

ASSISTANCEDIVISION

CO

ASSISTANT DIRECTOR

ASST. TO THE DIRECTORASST. TO THE DIRECTOR

FORAUDIT

ASST. TO THE DIRECTORFOR

ADMINISTRATION


RESOURCE ANALYSIS

DEPUTY ASSISTANT DIRECTORFOR

INFORMATION AND ANALYSIS

SYSTEMS EVALUATIONDIVISION

INFORMATION SYSTEMSDIVISION

REGIONAL OFFICES 1


ORGANIZATION

the transformation of the Government Preparedness Office into anOperations Office.4 From the first day of the freeze and throughoutthe 90-day period that office was the main link between Washing-ton and the field. The Operations Office dispatched messages anddirectives to the field and received inquiries, reports, and requestsfor assistance from the field. The office processed these messages toOEP staff divisions and appropriate Federal agencies, and followedup to assure rapid response. In the first 2 weeks of the freeze, thisoffice also handled direct inquiries from the public.

Another important and early change was the reordering of OEP'spriorities to give prime emphasis to the wage-price stabilizationmission, while continuing with minimal disruption certain essentialactivities. The natural disaster, oil policy, and stockpile activitieswere carried on at essentially prefreeze levels; but all other activi-ties were subordinated to the freeze. This reordering of prioritiesmade most OEP personnel available temporarily for staffing thenew freeze functions. At the same time, since the regular organiza-tion was not radically altered, some staff members could con-veniently devote part of their time to OEP's continuing functions.

The freeze had been under way only a few days when it becameevident that further organizational changes were needed in theNational Office. Lincoln asked the Deputy Director, Mr. Darrell M.Trent,5 to give his personal attention to the matter and proposethe necessary changes. By August 21 the situation had developedsufficiently to delineate the substantive activities involved in manag-ing the freeze: overall management and operational direction;participation in policy formulation and rulemaking; responding toquestions on the application and interpretation of policy; process-ing requests for exceptions and exemptions; informing the publicof freeze policies and procedures and gaining public understand-ing and support of the freeze; enforcing compliance with freezepolicies, rules, and directives; and monitoring, reporting, and re-cording the progress of the freeze.

4 This office was headed by Mr. Eugene Quindlen, who had directed GovernmentPreparedness activities since the inception of OEP. His 30 years of Federal service-most of it in the fields of government preparedness, program planning, and evalua-tion activities—included active duty as an officer in the U.S. Army (1942-46) andassignments with the Office of Emergency Preparedness, the Office of Civil andDefense Mobilization, the Federal Civil Defense Administration, the Veterans Ad-ministration, and the Federal Security Agency.

5 Trent became Deputy Director of OEP in August 1970, while continuing toserve as Executive Secretary of the President's Property Review Board, a post hewas appointed to in April 1970. Over the previous year he had served as DeputyAssistant to the President, with policy responsibilities involving development andcoordination of domestic affairs programs and with responsibility for White Houseliaison with certain Federal agencies, including OEP.

32


ORGANIZATION

It was apparent by this time that other Federal agencies wouldsupport OEP by assigning high-caliber personnel to help ad-minister the freeze. It had also been agreed that the InternalRevenue Service and the Agricultural Stabilization and Conserva-tion Service would become part of the field structure, as discussedbelow.

The organizational structure that Trent proposed reflected thesedevelopments.6 It also reflected an awareness of Lincoln's con-cept of crisis management and of his directive that certain ofOEP's day-to-day missions continue with minimum disruption.Lincoln approved the new organization on August 21, 1971; witha few minor changes this organization remained in effect through-out the freeze. The organization for economic stabilization activi-ties is shown in Figure 2.

Natural disaster personnel continued their normal duties rela-tively undisturbed by the freeze, although they did have to movetheir quarters to another building to make room for Federal agencypersonnel brought into the OEP National Office. Their duties keptthem fully occupied throughout the freeze period, for during thatperiod the President declared seven major disaster areas in theUnited States.

The impact of the freeze on the Resource Analysis Office, headedby Mr. William C. Truppner,7 varied from activity to activity. Asindicated above, the Oil and Energy and Stockpile Policy activitiescontinued without substantial interruption.

Most of the remainder of Resource Analysis personnel partici-pated actively in the freeze, although some were able to continue atleast part of their normal duties. The Office of Resource Evalua-tion, called the Policy Questions Office during the freeze, draftedpolicy statements for consideration by CLC and produced theStabilization Program Guidelines. The Office of Information andAnalysis created a computer-based reporting system to facilitateOEP management of the freeze and keep CLC apprised of freezedevelopments. The Economic Stabilization Division was tempo-rarily transferred from the Government Preparedness Office to

'Trent was assisted by J. Ray O'Connell, Assistant to the Director for Admin-istration, John P. Cannon, Special Assistant for Regional Affairs, and E. R. Heibergand Anthony A. Smith, Special Assistants to the Director for coordination and otherpurposes.

7 Since joining OEP in 1967, Truppner had served as Assistant Director forResource Analysis. He also chaired the Working Group of the President's Oil PolicyCommittee. His previous government experience included positions with the WarProduction Board in World War II, the National Production Authority and DefenseProduction Administration in the Korean War, and 8 years as Director of the Officeof Industrial Mobilization, Department of Commerce.

33474-893 O - 72 - 4


00p

FIGURE 2

OEP ORGANIZATION FOR ECONOMIC STABILIZATION ACTIVITIES

DIRECTOR

Deputy Director

RESOURCE ANALYSIS

POLICY QUESTIONS

INFORMATION &ANALYSIS

INFO. SYSTEMS

LONG RANGEPLANNING

GENERAL COUNSEL

POLICY &GUIDANCE

LIAISON

1 * * •

WAGES

PRICES/ RENTS

RULE MAKING

COMPLIANCE

CONGRESSIONAL &PUBLIC AFFAIRS

SPECIAL ASST. FORREGIONAL AFFAIRS

CONGRESSIONAL

MEDIA

L—\ SPEAKER BUR.

O

HISTORIAN

ASST. DIRECTOR

_LCOORDINATION

CORRESPONDENCEEXCEPTIONS &EXEMPTIONS

OPERATIONS

OPERATIONS CENTER

ADMINISTRATIVESUPPORT

10 REGIONS

COMMUNICATIONS

AGENCY COORDINATION

INQUIRY REVIEW

REPORTS

NOTES:1 - Ad hoc organization2 - Normal function (augmented)3 • Normal function (greatly augmented)* Primary liaison with IRS and Dept. of Justice

* * Primary liaison with other departments, agencies* * * Primary liaison with CLC staff

October 18,1971

> 3 * *


ORGANIZATION

Resource Analysis, where it assisted in the planning for Phase II.This division was returned to Government Preparedness on July25, 1972.

The Office of the General Counsel, under Mr. Elmer F. Ben-nett,8 was given several tasks. It reviewed draft policy proposals forlegality and consistency before they were sent to CLC for considera-tion. It converted CLC policy into regulations in a form suitablefor publication in the Federal Register. Further, the General Coun-sel's Office advised the OEP Regional Offices and the headquartersstaff on interpretation of CLC rulings.

A greatly expanded Office of Congressional and Public Affairswas charged with responding to congressional inquiries, pressinga vigorous public information program through the public media,and providing staff guidance and materials to regional public in-formation officers. The public information effort included a Speak-ers' Bureau to arrange speaking engagements and provide speechmaterial.

The Special Assistant for Regional Affairs monitored and re-ported on developments in the Regional Offices. He served as acoordinator and trouble shooter for regional matters at the Na-tional headquarters, assisted in inspections of the Regions, andadvised on regional staffing and organizational matters.

Several activities unique to the freeze resulted in the creation ofcompletely new staff elements. A special Coordination Office, underAssistant Director Haakon Lindjord,9 exercised continuous over-view of operations, coordinated the work of the various staff ele-ments, eliminated bottlenecks, and generally sought to improveOEP's administration of the freeze. A Policy and Guidance LiaisonOffice developed policy proposals for consideration by CLC andserved as OEP's interface with that agency. An Exceptions andExemptions Office staffed all requests for exceptions and exemp-tions from the freeze. A Correspondence Section expedited re-sponses to all correspondence concerning the freeze coming into

8 Bennett's career includes several years of private law practice dealing primarilywith antitrust and natural resource problems; service as General Counsel and sub-sequently Under Secretary of the Department of Interior; and service as GeneralCounsel and Assistant to the Director of the Public Land Law Review Commission.He left the latter position in May 1970 to become Special Assistant to the Directorof OEP for oil and energy matters. He became General Counsel in July 1971 andwas sworn in as an Assistant Director of OEP on November 29, 1971.

9 Before coming to OEP in January 1969, Lindjord was on the professional staffof the U.S. Senate Subcommittee on National Security and International Operations,having joined the staff upon retirement as a Colonel, U.S. Army, in 1968. Duringhis 27 years in the Army he served in various command and staff positions, includingthat of Director, Policy Planning Staff, Office of the Assistant Secretary of Defense(International Security Affairs) .

35


ORGANIZATION

the National Office. A Compliance Branch, established in the Officeof the General Counsel, processed those compliance cases forwardedby the OEP Regional Offices and maintained liaison on legalmatters with the Regional Offices, the Internal Revenue Service,the Justice Department, and CLC. Separate sections were alsoestablished in the General Counsel's Office to deal with rulemaking,wages, and prices and rents. A Historian's Office was immediatelyestablished to record the story of OEP management of the freeze.

FIELD ORGANIZATION

Another important development was the expansion of the OEPfield organization from eight to 10 regions to conform with the10-region structure of several other Federal agencies. Immediatelyfollowing the President's speech on the evening of August 15,Lincoln held a telephone conference with his Regional Directors,who had been directed to listen to the speech. He ordered themto move their headquarters from their isolated locations to thelarge cities in which the Federal Regional Councils 10 were locatedand to set up regional service centers in these cities.

The uniform Federal regional structure called for 10 uniformregions for all affected agencies, with regional offices all located inthe same 10 major cities. On March 1, 1971, OEP had realigned itsregional boundaries to conform substantially to this pattern, butwith only eight regions. Upon the advent of the freeze, Regions 1and 6 were split to form two new regions with headquarters inNew York City and Kansas City. Regional Service and ComplianceCenters, renamed "OEP Regional Offices" on August 30, wereestablished in the 10 major cities designated in the uniform struc-ture.11 All 10 of the relocated Regional Offices were open forbusiness by Wednesday, August 18, as ordered by the Director.Figure 3 shows the regional boundaries and the location of the 10Regional Offices.

The Regional Directors were told to use the organization chartin the Manual for Regional Emergency Operations—EconomicStabilization Agency as a guide in organizing for their new mission

10 Federal Regional Councils are composed of the senior field representatives ofthe Federal agencies administering grant programs in the respective regions.

"Before the freeze, OEP Regional Offices were generally established in isolatedlocations at Federal relocation sites. These were maintained to provide Federaldepartments and agencies with alternate operating and communications facilitiesunder certain conditions of national emergency.

36


FIGURE 3

OFFICE OF EMERGENCY PREPAREDNESS REGIONS

COJ

Puerto Rico, Virgin Islands. . . . Region 2 x7 \District of Columbia Region 3 \Canal Zone Region 4 \American Samoa, Guam, Trust VTerritory of the Pacific Islands . . Region 9 1


ORGANIZATION

FIGURE 4

OEP REGIONAL OFFICE ORGANIZATIONFOR ECONOMIC STABILIZATION

REGIONAL DIRECTOR

Deputy Regional Director

1 1REPORTS &ANALYSIS LEGAL COUNSEL

1PRICE

1 1LIAISON & PUBLIC

INFORMATIONADMINISTRATIVE

SERVICES

1RENT WAGE AND

SALARY

(see Figure 4). Some Regional Directors added an Operations-Communications Section and an Office of Exceptions and Ex-emptions. They were to look to the field offices of the GeneralServices Administration (GSA) for administrative support and ofthe Civil Service Commission (CSC) for help in obtaining anexpanded staff. Concurrently, the Washington offices of GSA andCSC issued instructions to their regional offices to give OEPRegional Directors the highest priority assistance.

During the first 2 weeks of the freeze the principal business ofthe Regional Offices was to answer questions and inform the publicabout the freeze; to serve as focal points for receiving complaintsand reports of alleged violations; and to act as channels for trans-mitting information and queries on various aspects of the freezeto the National Office.12 The initial public impact on these officesis indicated by the telephone company's estimate that as many as10,000 calls an hour were dialed to OEP's New York office on theday it opened.

Lincoln did not intend, however, for OEP's Regional Offices tocarry the full load of information and compliance activities. As

12 Implementing Instructions to OEP Regional Directors, Message No. 2, August15, 1971.

38


ORGANIZATION

early as the evening of August 15, he agreed to the idea of gettinganother agency to assist in these activities.13 After considering thepros and cons of delegation to various agencies, he decided on theInternal Revenue Service (IRS). In his view, the IRS appeared tobe most suitable because it had:

a. A nationwide network of offices readily accessible to mostAmericans.

b. A large and widely distributed staff with requisite skills andexperience in investigation and compliance procedures and in deal-ing with the public.

c. A somewhat seasonally reduced workload on income tax activi-ties, which permitted a substantial number of the field personnelto assume additional duties during the 90-day freeze.

For the above reasons the Director on August 19, after consultingwith the Secretary of the Treasury, delegated to that official "theresponsibility and authority for the establishment, operation andmaintenance of local service and compliance centers." The func-tions exercised by these centers included: dissemination of informa-tion and guidance to the public; receipt, analysis and evaluationof complaints concerning violations; and, under the coordinationand policy guidance of the Director of OEP, the investigation ofcomplaints and enforcement of the stabilization of prices, rents,wages and salaries.14 On the same day, the Secretary of the Treasurycharged the taxpayer assistance network of the Internal RevenueService with operating these local service and compliance centers.15

Also on August 19, the Director arranged for the county offices ofthe Agricultural Stabilization and Conservation Service (ASCS)to function as information centers for the rural areas of the UnitedStates.16 A few days later, on August 25, Lincoln requested thatIRS officers, incidental to their visits on tax matters, make spotchecks to help monitor compliance with the freeze.17

As a result of these developments, the field organization foradministering, implementing, monitoring, and enforcing the eco-nomic stabilization program was completed and was functioningsatisfactorily by the end of the second week of the freeze. Therelationship of the field organization to the National Office of OEP

13 The proposal was contained in Leonard Skubal's Memorandum for the Director,August 15, 1971, Subj: Action Items and Required Policy Guidance.

14 OEP Economic Stabilization Order No. 1, August 19, 1971.15 Treasury Department Order No. 150-75, August 19, 1971.19 Lincoln, Memorandum for the Record, August 19, 1971, Subj: Telecon with

Secretary Hardin.17Ltr, Lincoln to Connally, August 25, 1971.

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ORGANIZATION

and CLC is shown in Figure 5. The field organization remainedessentially unchanged throughout the remainder of the freeze.

OEP Regional Offices conducted intensive public informationprograms; coordinated and monitored the information and en-forcement activities of the IRS and the information activities ofthe ASCS offices; and gave the IRS and ASCS offices policy guid-ance, technical assistance, and other forms of support related to theeconomic stabilization program. Following CLC and OEP NationalOffice guidelines, the Regional Offices gave interpretations of speci-fic freeze situations and problems. They identified and sent to theNational Office those policy issues that could not be resolved inthe field, and after September 3, 1971, they were authorized todeny requests for exemptions in cases where clear precedents hadbeen established.18 They reported on a daily, weekly, and ad hocbasis to the Director and other National Office officials on variousaspects of the program, including its effectiveness and its impacton the public. Furthermore, the Regional Offices maintained con-tinuous contact with the regional offices of other Federal agenciesand with Governors, Attorneys General, and other State officials.19

Seven IRS Regional Offices monitored and supported the eco-nomic stabilization activities of 58 IRS District and 302 SubdistrictOffices. All IRS offices responded to direct public requests forinformation and supported the ASCS county offices in their re-sponses to such requests. The IRS offices investigated allegations ofnoncompliance and reported each week to the OEP RegionalOffices on economic stabilization activities.

The ASCS county offices responded to direct public requests forinformation, handled local media contacts, transmitted complaintsto the nearest IRS office and reported, as requested by OEP, oneconomic stabilization activities within their respective counties.

The completed freeze organization afforded a framework withinwhich Lincoln could effectively discharge his dual responsibilitiesduring the 90-day freeze. It reflected sensitivity to the peculiarconditions of the 90-day period, particularly the need to providea rapid response to public concerns over various implications ofthe freeze. It facilitated the task of welding together an operatingstaff composed largely of persons from other agencies and allowedOEP to coordinate smoothly with the agencies associated with it in

18 See Chapter V.19 At the request of OEP, each State Governor (and the Governor of Puerto

Rico) appointed a person to serve as official liaison between his office and therespective OEP Regional Office; see Lincoln, Memo for the Chairman, CLC, August25, 1971.

40


ORGANIZATION

FIGURE 5

WAGE-PRICE FREEZE ORGANIZATION

COST OF LIVINGCOUNCIL

EXECUTIVEPOLICY

COMMITTEE

OTHERDEPARTMENTS

ANDAGENCIES

NATIONALOFFICE OF EMERGENCY

PREPAREDNESS

ASCSNATIONAL

OFFICE

ASCS50 STATEOFFICES

IRSNATIONAL

OFFICE

OEP10 REGIONAL OFFICES

IRS7 REGIONAL AND

58 DISTRICTOFFICES

ASCS2819 COUNTY

OFFICES

IRS302 SUBDISTRICT

OFFICES

41


ORGANIZATION

administering the freeze. Finally, the organizational structure re-flected the Director's precepts of crisis management.

BUILDING AN OPERATIONAL STAFF

General Policy on Staffing

OEP's policy for developing an operational staff for the freezediffered greatly from that reflected in OEP's economic stabilizationplans developed to meet war emergencies. As mentioned earlier,these plans called for a system of control agencies, one of whichwas an Economic Stabilization Agency. Under this system, im-portant operational responsibilities would have been delegated toFederal agencies consistent with their normal peacetime functions.OEP would have been abolished, and its personnel used to helpstaff the Office of Defense Resources, the Economic StabilizationAgency, and other elements of the control structure. Key positionsin the new agencies, however, would have been filled by activatingthe National Defense Executive Reserve (NDER) at both nationaland regional levels.20 Additional staffing would have been providedby detailing predesignated technical personnel from Federal agen-cies and by recruiting technical and clerical personnel from theprivate sector.

The game plan actually used for the freeze was vastly different.The President placed the OEP Director in charge of administeringthe freeze under the general guidance of the Cost of Living Coun-cil, and the only delegations of operational functions to otherFederal agencies were those that Lincoln made to the Secretary ofthe Treasury (for IRS) and the Secretary of Agriculture (forASCS). Furthermore, the President had stated emphatically thathe did not want a large bureaucracy administering the freeze andthat he intended that the other Federal agencies provide the per-sonnel needed to augment OEP's staff. It is not surprising, then,that OEP's staffing policy varied so much from the advance scriptand that Executive Reservists saw little action in the freeze.

In addition to the President's views on staffing, there were severalcogent reasons for not giving the Executive Reservists a moreprominent role. Lincoln summarized these reasons as follows:

20 The NDER is a pool of key personnel from industry and other sectors ofsociety selected and trained to fill important positions in the Federal Government intime of emergency.

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ORGANIZATION

While I was pressed by some to. activate the NDER immediately, I postponedaction for several reasons. First, we did not know the magnitude of the under-taking. Second, most of the Executive Reservists had responsible jobs in industryand would have had difficulty in getting detached. They could not go to workthe next morning (Monday, August 16) and we needed people immediately.Third, the Executive Reservists are generally senior people in their organizationsand would have wanted to work with major policy determination. But we hada freeze, not a system of economic controls, and what we needed most wasoperators in the field, not experts advising on policy. Fourth, I saw a real conflictof interest developing if we used Executive Reservists over a period as long asthe 90-day freeze. We had to keep the public with us, and I wanted to give thepress no opportunity to allege conflict of interest. Finally, within 24 hours itwas clear to me that I was going to get excellent cooperation from the Federalagencies and that this would do the job. So, I told each Regional Directorto bring in his Executive Reservists, brief them thoroughly, and add them tohis communications net—to keep them posted, get them to help us keep thepublic informed, and to the extent feasible use them for speaking engagements.21

Having decided against the formal activation of the ExecutiveReservists, Lincoln laid down the following policy for expandingthe staff. First, the greatest possible use would be made of OEPpersonnel. Second, the freeze organization would be fleshed outwith personnel detailed from other agencies. Third, as a last resort,personnel would be recruited on a temporary basis from the privatesector.

In genera], Lincoln left the implementation of this policy tosubordinates in the National Office and to the Regional Directors.He did, however, take a personal hand in a few instances. In histelephone conference on Sunday night, August 15, he advised theRegional Directors to look to the Civil Service Commission (CSC)at the regional level for primary assistance in staffing. Also, duringthe early days of the freeze, he personally enlisted the help of a fewhigh-level government officials in other agencies in overcomingsome especially critical personnel shortages. His policy, however,was to depend on the cooperation of the Federal agencies repre-sented on CLC, the substantial pressure that the Office of Manage-ment and Budget (OMB) could bring to bear on Federal agencieswhen necessary, the active support of the Civil Service Commissionboth in Washington and in the field, and the hard work of hisown Personnel Office.

The OEP Personnel Office in Washington shouldered the burdenof arranging for Federal agency personnel to work with OEP. Thefirst morning of the freeze, Mr. J. Ray O'Connell, Assistant to theDirector for Administration, and Mr. Charles Pierce, Chief of theOEP Personnel Division, visited key officials of the Civil ServiceCommission and obtained their assurance of full cooperation in

21 Lincoln, interview with the OEP historical staff, February 3, 1972.

43


ORGANIZATION

meeting OEP's manpower needs at both the national and regionallevels.

OMB also helped to solve OEP's staffing problems. Heads ofFederal agencies were asked to instruct their regional directors toprovide OEP Regional Offices with the personnel they needed.OMB also requested the Regional Councils and the Federal Ex-ecutive Boards to give all possible assistance. OMB sent a repre-sentative to each of OEP's new Regional Offices to help with theliaison activities involved in the massive borrowing of personnel.This added assistance aided the OEP Regions in forming theirstaffs and becoming operational in record time.

The Regional Directors depended heavily on the initiative andassistance of the Regional CSC personnel. In a number of instances,OEP Regional Directors asked the Federal agencies to assign speci-fied individuals, and these requests were usually honored. CSC washighly cooperative in working with OEP Regional Offices. TheCSC Regional Directors participated in the staffing process, advis-ing on the kind of persons to get from each agency, and contactingFederal agencies to encourage their cooperation. In some Regions,the Chairman of the Federal Executive Board helped out by con-tacting Federal agencies and by encouraging them to comply withOEP's staffing requests.

The Staff Expands

Vigorous implementation of this policy of drawing on otheragencies led to a rapid increase of OEP's staff. The National Officestaff, which numbered about 230 at the beginning of the freeze,expanded to 381 by the end of the first week and leveled off atabout 415 during September and October.22 About 185 of thesepeople were on loan from other agencies.23

The regional staff expanded even more dramatically. On August15, the total force for the eight-region structure was about 70,ranging from six to nine at each office. By the end of the first weekthe total strength for the new 10-region structure was just over280, with staffs ranging from 18 to 36. On October 1, near the heightof operations, total strength in the Regional Offices was about 390.

Persons detailed to OEP came from some 40 Federal agencies. On

22 This figure of 415 includes those OEP employees who had no part in admin-istering the freeze and those who devoted only part of their time to it. Whenappropriate adjustments are made for these employees, the strength of the freezestaff in the National Office was about 340 at the peak of activity.

23 See Table 1.

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ORGANIZATION

October 22, the Defense Department headed the list with 98, theDepartment of Labor was second with 49, and the Department ofHealth, Education, and Welfare was third with 43. Table 1 gives abreakdown of Agency personnel detailed to OEP at the nationaland regional levels.

TABLE I—Detailed Personnel: Agency Affiliation(October 22, 1971)

Department/Agency National Office Regions Total

Defense:Army 24 28 52Air Force 6 1 7Navy 4 3 7Other 12 20 32

(Sub-total from Defense) (46) (52) (98)Labor 15 34 49Health, Education, and Welfare 10 33 48Agriculture 13 25 38Treasury 12 22 34General Services Administration 5 29 34Commerce 23 10 33Housing and Urban Development 8 21 29Interior 8 7 15Office of Economic Opportunity 4 11 15Justice 3 9 12Transportation 2 10 12Small Business Administration 2 9 11Veterans Administration — 11 11Federal Trade Commission 3 3 6Central Intelligence Agency 6 — 6Civil Service Commission — 6 6All other agencies 25 8 33

Totals 185 300 485

Integrating the Newcomers

The persons detailed from Federal agencies brought to OEP awide range of professional, technical, operational, management,administrative, and clerical skills, and they were urgently needed inall these categories. At the National Office detailed clerical person-nel were assigned to almost all offices concerned with freeze activi-ties, with the largest share of them going to the offices responsiblefor legal interpretations, correspondence, and exceptions and ex-emptions. Professionals from other Federal agencies were used prin-cipally in a liaison capacity with their respective agencies and inproviding technical advice in their particular areas of expertise. Afew, however, were used in management and operational roles.

45


ORGANIZATION

At General Lincoln's personal request, the Department of De-fense detailed a few officers who played key management rolesthroughout the freeze. These skilled staff officers had previouslyserved with OEP and were familiar with its procedures and policies.Several of the professionals from the Office of Civil Defense (sinceredesignated Defense Civil Preparedness Agency) helped managethe Operations Center; they were able to fit readily into this assign-ment because their normal duties bring them in close contact withOEP's Government Preparedness Office. The U.S. Army Inter-agency Communications Agency (USAICA), an element of theU.S. Army Strategic Communications Command, provided skilledoperators to augment OEP's communications capability.

Some thought was given to putting the detailed agency personnelinto separate groups according to areas of expertise. The Directorrejected this course, however, because he believed it would un-necessarily prolong the period of adjustment that would have totake place before the newcomers became useful to the organization.Integration of the incoming personnel into the appropriate OEPoffices from the outset put the newcomers immediately into thecenter of action; this practice probably was an important factor inmaintaining high morale throughout the freeze. It also enabled OEPto weed out and expedite the return to their home agencies of thesmall number of detailees who did not adjust readily to the de-mands of the situation.

The largest number of individuals detailed to the NationalOffice were integrated into the Operations Center, with the Gen-eral Counsel's Office and the Resource Analysis Office respectivelyin second and third place, as shown in Table 2.

Detailed personnel played different and relatively more im-portant roles at the regional level. The OEP contingent in mostRegions was only large enough to staff the offices of the RegionalDirector and the Deputy Director and in some Regions to providethe cadre for operations-communications and administrative serv-ices. Thus, at the regional level, detailed personnel filled all pro-fessional and almost all clerical spaces in the offices dealing withfreeze functions. They filled all but one public information slot,all but one exceptions and exemptions slot, and a substantialnumber of positions in the operations-communications and ad-ministrative services categories.

46


ORGANIZATION

TABLE 2.—Detailed and Appointed Personnel: OEP Office Assignment(October 8, 1971)

Agency Details Temporary HiresOffice

Professional Clerical Professional Clerical Consultants

Director — — — — 1Assistant Director 3 — — — —Historian 1 1 — — 2Resource Analysis 21 4 1 - 2Exceptions & Exemptions 10 4 — 1 —General Counsel 32 16 - 4 1Congressional &

Public Affairs 12 1 1 3 1Correspondence 5 15 2 3 —Government Preparedness

(Operations Center) 48 3 — 2 —Administration 1 3 — 5 —Regional Affairs 8 1 — — —Disaster Programs — 1 — 1 —Oil & Energy 1 — - - —

Subtotal 142 49 4 19 7

Region 1 24 9 - 3 1Region 2 28 19 1 - 1Region 3 22 16 - 1 2Region 4 23 11 - - -Region 5 25 9 — — —Region 6 14 8 — 4 1Region 7 24 10 - 2 -Region 8 21 1 — 8 —Region 9 18 11 - - -Region 10 13 9 — — —

Region OfficesSubtotal 212 103 1 18 5

Grand Total 354 152 5 37 12

Staffing Problems

OEP encountered a few significant problems in developing anoperational staff. One problem arose from the assignment of somepersons who proved to be unsuitable for the rigorous work of thefreeze. Most agencies realized from the beginning the importanceof sending motivated and well qualified persons. When those as-signed failed to measure up, OEP used several means to correct thesituation. In some cases they were returned to their agencies asbeing unsuitable for the assignment, and the sending agencies wereasked to replace them with individuals better equipped for the

47


ORGANIZATION

assignment. Another approach sometimes found feasible was tobring such persons to required effectiveness by on-the-job train-ing.2*

Initially, many agencies detailed personnel on a short-term basis—1 to 2 weeks in some cases, and 1 to 2 months in others. Oneagency sent a different person every day to fill its contribution ofone clerk-typist to Region I.25 This rapid turnover of personnelnegated the value of expertise gained on the job, expertise sorelyneeded as the freeze progressed and technical questions becameincreasingly difficult.

By September 3, the turnover problem had become acute, andLincoln called on OMB for help. He cited OEP's need for anexpanding reservoir of expertise to cope with the increasinglydifficult problems of the freeze. Unnecessary rotation of personnel,he emphasized, was highly prejudicial to this requirement. Hesuggested that all agencies be directed to assign personnel for theduration of the freeze at both national and regional levels. A fewdays later, he raised the problem at a CLC meeting and waspromised cooperation from those members whose agencies werecontributing personnel to OEP.26 At about the same time, theDirector sent to each agency that had persons detailed to OEP alist of that agency's personnel whom he wished to retain for theduration of the freeze. These actions, supplemented by cross-train-ing of specialists at the regional level, substantially solved the turn-over problem.27

The problem of personnel shortages was much harder to solve.While shortages existed until the final days of the freeze, the prob-lem was serious in only two categories: clerk-typists and lawyers.The shortage of typists became evident fairly early; on August 27the Director told representatives of CLC, OMB, IRS, and ASCSthat the most important personnel problem at that time was ashortage of secretarial help.28 The Director told OEP's PersonnelOffice to appeal to the Federal agencies generally but to concentrateon the Department of Defense and the Civil Service Commission,and, if this proved insufficient, to run ads in the newspapers. The

2* One Region reported that some of its offices obtained excellent results froma "buddy" system—that is, an inadequately qualified person was assigned to work witha highly qualified person in the same specialty. Allums Report on visit to Region3, November 11, 12, 1971.

25 After-Action Report from Region 1.26 These agencies were the Departments of the Treasury, Agriculture, Commerce,

Labor, and HUD and the Federal Reserve System.27 Lincoln, Weekly Report to Chairman, CLC, October 9, 1971.28 Lincoln, Memorandum for the Record, August 28, 1971, Subj: Meeting on

Management of Economic Stabilization Program.

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ORGANIZATION

shortage of clerk-typists was never completely eliminated, but themost pressing needs were met, principally through contributionsby the Department of Defense and through recruitment from theprivate sector.

Although OEP officials welcomed several Federal Power Com-mission lawyers who volunteered their services on August 16, theydid not foresee, during the first days, the need for such numbers oflawyers as were later required. At the outset of the freeze, theOEP General Counsel, Mr. Elmer Bennett, had only two attorneys.The Office expanded slowly at first, and on September 3 had eightattorneys, far too few to keep up with the workload. By mid-September a backlog of 400 requests for legal interpretations hadpiled up. Following an urgent appeal from Lincoln to the Chair-man of CLC, additional attorneys and other specialists were madeavailable from several Federal agencies.

The General Counsel's Office eventually reached a peak strengthof 28 attorneys, 11 specialists, and 20 secretaries. This staff beganto reduce the backlog of work and kept the situation under faircontrol until the last two weeks of the freeze. At that time anothershortage of attorneys developed, mostly as a result of the departureof several attorneys to private employment and transfer of severalothers to the staffs being recruited by the Pay Board and PriceCommission.29

Evaluation of Staffing Policy

OEP Regional Directors and key officials in the National Officeunanimously endorsed the policy of augmenting OEP's operationalstaff with personnel detailed from other Federal agencies.30 In theirjudgment, the detailed personnel, with a few exceptions, werecapable, highly qualified, cooperative, enthusiastic about their as-signments, and dedicated to making the freeze a success. MostRegional Directors attested to the cooperative spirit of the con-tributing agencies and the excellent work of Civil Service Com-mission officials in making these high-caliber people available tothem.

OEP officials at headquarters and in the Regions commented onthe high morale of both detailed and regular personnel throughoutthe freeze, despite the long hours and hectic pace. Regional Direc-

29 Bennett, Memorandum for the Director, November 10, 1971, Subj: The Conductof the Freeze, Office of the General Counsel.

30 See the After-Action Reports from National Office divisions and RegionalOffices.

49

474-893 O - 72 - 5


ORGANIZATION

tors noted that morale of detailed personnel declined somewhatduring the last few weeks and attributed this to the letdown to beexpected as one nears the completion of a highly challenging under-taking and to uncertainty on the part of some as to their statusin the next phase of the program.

Headquarters and regional staffs made several suggestions forimproving the use of detailed personnel under emergency condi-tions. All Federal agency heads, it was suggested, should agree atthe outset of an emergency to assign their personnel for the dura-tion of the emergency. The field offices of these agencies should beinstructed from the first of their obligation to send capable peopleand assign them for the duration. Furthermore, each Region shouldestablish a standby cadre of about 20 Federal agency personnel inits immediate area. The cadre should be composed of typists,stenographers, administrative assistants, computer operators, publicinformation officers, and persons skilled in writing reports. Itwould receive periodic training in OEP responsibilities and func-tions and would be used to expand the regional staff when this wasrequired by a natural disaster or other emergency.

The operational staff for the freeze was developed speedily andwith high effectiveness. The use of personnel borrowed fromFederal agencies was approved by almost everyone connected withadministering the freeze. By and large, the detailed personnel werecapable and highly motivated. They worked as a team with theOEP regulars, and their contribution was indispensable to thesuccessful management of the 90-day freeze.

ADMINISTRATIVE, LOGISTICAL, AND TECHNICAL SUPPORT

Administrative and Logistical Support

The rapid expansion of OEP National and Regional staffs pro-duced a rash of administrative and logistic support problems.Requirements for mailroom and messenger service, parking facili-ties, transportation after normal duty hours, provision of charts andother graphics, reproduction of press releases and reports and otherdocuments, and enforcement of security measures were all greatlyincreased during the freeze. With only a modest increase in itsstaff,31 the Office of the Assistant to the Director for Administrationhandled these requirements without serious difficulty.

31 The staff increased from 15 to 16 professionals and from 18 to 27 clericalworkers.

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ORGANIZATION

The matter of security did pose a problem. On the first day ofthe freeze, with the sudden "invasion" of the National Office byvisitors and reporters, adequate control of persons entering security-restricted areas presented some difficulty. The situation was con-trolled by the issuance of temporary security passes to all new anddetailed personnel and by requiring all employees to wear theirsecurity badges while on duty. These actions and the enforcementof other security measures resulted in strict compliance with OEPsecurity policies throughout the remainder of the freeze.

Arrangements for covering the expenses of the freeze drew theAdministration staff and other OEP officials into negotiations withthe Treasury Department, GSA, and OMB. There were no prob-lems with respect to salaries of persons from other Federal agencies,since these individuals were detailed to OEP on a non-reimbursablebasis. The funding of other expenses, such as those resulting fromtemporary hire, relocating and equipping the OEP RegionalOffices, installation and maintenance of communications and otherequipment, and travel associated with the freeze, presented prob-lems. Negotiations over the funding of these expenses lasted untilJune 1972, when it was finally agreed that these expenses wouldbe paid from funds that Congress had made available to the Costof Living Council.

The Assistant to the Director for Administration, J. R. O'Con-nell, worked closely with GSA to obtain suitable office space for theNational and Regional Offices. The space problem in the NationalOffice was solved by two means. First, the Disaster Programs andStockpile Policy offices, which were not involved in the freeze, weremoved to temporary quarters a few blocks from the National Office.Second, additional office space was obtained by renovating two oldbuildings adjacent to the headquarters building.

Obtaining space for the Regional Offices and equipping themwere much bigger tasks, but these were handled expeditiously withthe assistance of GSA. As related earlier in this chapter, all theRegional Offices were in their new locations by Wednesday of thefirst week of the freeze. Through the cooperation of GSA andprivate industry, particularly the telephone companies, logisticalsupport was adequate by the end of the week and was improvedthereafter. In some Regions, visits by Deputy Director Trent andO'Connell helped to assure superior office space and desirable loca-tions for those Offices. GSA made special efforts to assist theRegional Offices in obtaining supplies and stationed GSA employeesin several Offices to assist with procurement. The results achieved

51


ORGANIZATION

through these and other means caused the OEP Regional Directorsto rate GSA's logistical support as outstanding.

Technical Support

The technical support rendered by the U.S. Army InteragencyCommunications Agency is described in the following chapter.Another source of valuable technical support was the Mathematicsand Computation Laboratory (MCL), an element of the U.S.Army Corps of Engineers.

Some 55 MCL staff members, under the direction of Mr. IrvingGaskill, devoted a significant amount of their time to the develop-ment, support, and operation of the computer-based systems thathelped OEP manage the freeze. MCL experts helped with thedevelopment and maintenance of the EMISARI 32 system and itsimprovement; entered the rulings, exemption briefs, and newsitems into the system; and visited OEP Regional Offices to instructthe staff in its operation and uses. The MCL staff developed, main-tained, and operated two other computer-based management sys-tems: a computer-operated file to determine the status of staff actionson requests for policy guidance; and another such file to keep trackof all incoming correspondence related to the freeze. MCL staffmembers also developed computer-based techniques for possible usein Phase II.33

32 For a discussion of the EMISARI system, see pp. 64, 72.^Irving Gaskill, Memorandum for OEP Historian, June 5, 1972, Subj: MCL

Activities in the Wage Price Freeze. See also p. 184.

52


Managing the Freeze

DIRECTING THE PROGRAM

Setting the Course and Pace

Lincoln applied his concepts of crisis management (explainedin Chapter II) to the direction and overall management of thefreeze program, setting OEP's course according to the principlethat the crisis mission should be the central guide to action. Hereordered the Agency's priorities and modified its organization toaccommodate the functions unique to the freeze. He made it clearto his staff that they were administering a freeze, not a system ofeconomic controls. OEP's task was to hold the line while the Ad-ministration was preparing a program of controls to follow thefreeze.

Along with this fixed objective, the OEP Director maintained aflexible posture in managing the freeze. He shifted the emphasis onspecific functions quickly as new developments occurred. For ex-ample, when IRS and ASCS were able to take over the main re-sponsibility for contact with the public, he ordered the OEP Na-tional and Regional Offices to concentrate on direction, super-vision, and analysis of the program. Later, as the outlines of thepostfreeze program became visible, he placed increased emphasison making the transition as smoothly as possible.

The Director set a fast pace for his management team—it wasdouble time almost all the way. Annual leaves were postponed formost OEP employees, and long hours and 6-day work-weeks werethe norm, not the exception. Only during the last few weeks didthe pace begin to ease. Until then an 80-hour week was the usualwork load for the Director and key members of his staff, and manyothers put in equally long days and weeks.

Lincoln set this fast pace because he believed that quick andpositive response is a cardinal requirement in a crisis situation. In

53


MANAGING THE FREEZE

his view, those managing the freeze had to act quickly and positivelyto let the people know that an agency of the Government was"minding the store." For this reason, the National Office staff beganmanning the telephones on the first day of the freeze, and con-tinued this service until the field offices were able to take over.

Believing that in a crisis situation prolonged deliberation per-mits too many problems to pile up, Lincoln established shortdeadlines for decision and action. To keep the work load frompiling up in the National and Regional Offices, he directed thatthe backlog of written inquiries not be allowed to exceed the totalof 3 days average input, and that a system be set up to monitorthis activity. He also directed IRS to set a goal of resolving eachweek as many complaints as it received the preceding week. Byand large, once the management system was in full swing, thesetargets were met.

Questions that required legal interpretations or new policy guid-ance usually could not be answered in this time frame, but werehandled as rapidly as their complexity permitted. In the case ofnew guidance, this meant fast staff work to frame the questionsproperly for decision by the Cost of Living Council. CLC decisionswere released to the press immediately if newsworthy, and all policystatements were distributed to field offices by teletype as soon asfinal wording was agreed upon.

The Director's policy of fast pace, quick response, and shortdeadlines enabled him to maintain the momentum of his initialfast start and make optimum use of his resources. Or, as he ex-pressed it, his organization was able "to stay up on the powercurve." It sought in this way to forestall unnecessary questionsfrom the public and keep to a minimum violations that might haveresulted from ignorance.

Techniques and Instruments of Control

Lincoln believed that as the freeze administrator he should avoidimmersion in details so that he could be free to orchestrate anddirect the entire operation. As a general rule he took no telephonecalls except from ranking officials in the Government. While hegranted requests for appointments to many representative groupsfrom private sectors of the economy, his practice was to leave anyextended discussions to staff members. To avoid being swampedby minutiae he delegated some functions, adapted his regular man-

54


MANAGING THE FREEZE

agement team to the exigencies of the freeze, and created some newmanagement subsystems to deal with special functions.

In his role of freeze administrator, Lincoln exercised central con-trol and established a single, direct line of command over hisresources. There were suggestions at the time that the responsi-bility for administering the freeze be divided among several Federalagencies. In the Director's judgment, however, such a course wouldhave been unwise. Coordinating the actions of a new decentralizedsystem in a fast moving situation, he believed, would have been analmost impossible task. Moreover, he could not make broad delega-tions to the agencies without policy to guide them, and the neces-sary policy guidance did not exist at the outset of the freeze. Con-sequently, as mentioned in Chapter II, personnel from other Fed-eral agencies were integrated into OEP's staff.

While he maintained a single, direct line of control over hisorganization, the Director found that frequently there was no timefor briefings up and down the line. Therefore, when necessary, helaid the requirement directly on the person who was to do the job.As soon as there was time for it, this person briefed the chiefs ofintervening echelons on what he was doing.

The Director stressed teamwork as the key to success in ad-ministering the freeze program and established coordinating mech-anisms at all levels to promote it. He made sure that pertinentinformation was dispatched to everyone who needed it—the mem-bers of CLC, the Federal agencies in Washington and in the field,the State Governors, and the general public. While the Directorused the news media to help spread information to the public, hedepended on direct channels to get prompt and accurate informa-tion to his own field structure.

COORDINATION AND LIAISON

National Office

Coordination within the National Office was accomplished prin-cipally through two special instruments: (1) the CoordinationOffice, consisting of three special assistants to the Director andheaded by Assistant Director Haakon Lindjord, and (2) the DailyCoordination Meeting attended by the members of the Coordina-tion Office and the chief or the executive officer of all major head-quarters offices participating in the freeze.

55


MANAGING THE FREEZE

During the first week of the freeze, the Director appointed threespecial assistants to help coordinate the activities of the greatlyexpanded national staff: E. R. Heiberg, III, Anthony A. Smith, andRichard L. Berkman. Berkman was replaced by G. Lee Butlerearly in September.1 On August 22 the three special assistants wereassigned to the newly formed Coordination Office.

Heiberg worked mainly with organizational matters, OEP Re-gional Office operations, and Federal agency support. Smith con-centrated on the internal organization and functioning of theWashington office, policy questions, and compliance activities.Berkman concentrated on policy issues and was also ExecutiveSecretary of EPC. Butler, Berkman's replacement, served as Ex-ecutive Secretary of EPC, worked on policy issues, and toward theend of the freeze served in a liaison capacity with CLC, the PayBoard, and the Price Commission. These individuals knew OEPwell, had no bureaucratic aspirations there, and were held in highregard as professional public servants by OEP personnel. Theyserved well as coordinators, bottleneck-breakers, troubleshooters,innovators, and expediters.

While comprising a secretariat of expediters, these special as-sistants were not in the chain of command. Most of their work wasdone by personal or telephone contact, although they occasionallyproduced staff papers on problems of interagency or intra-agencycoordination. They could execute special assignments rapidly be-cause they were not expected to assist in normal bureaucraticoperations. The three special assistants reported to the Director onCLC and EPC policy matters, to the Deputy Director on organiza-tional and field problems, and to the Assistant Director on in-houseoperational and management problems. Lindjord and the threespecial assistants had immediate access to the Director and everymember of OEP, and could speak for the Director outside andinside the Agency.

The institution of the Coordination Office provided a secondchannel for matters requiring the Director's attention. The Execu-tive Assistant, Mr. Thomas J. Simmons, continued to handle on-

1 Colonel Heiberg, who had served as Lincoln's executive assistant in 1969-70,was on loan from the Office of the Chief of Staff, U.S. Army, as was Lt. Col. Smith.Smith was just completing a year's tour at OEP when the freeze hit, and his tourwas extended for the duration of the freeze. Mr. Berkman, who served in OEP'sPlanning Review Office from 1969 to 1970, returned to OEP to help out in theearly days of the freeze, but left on September 6 to return to Harvard Law School.His successor, Major Butler, had been detailed to OEP from the U.S. Air ForceAcademy for part of the summer of 1971 and was called back for the duration ofthe freeze.

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MANAGING THE FREEZE

going OEP matters, while the Coordination Office handled theeconomic stabilization load.

The central coordinating mechanism in the National Office wasthe Coordination Meeting held each day at 5:00 P.M. in theDirector's conference room. Assistant Director Lindjord usuallychaired the meetings, although occasionally Deputy Director Trentacted as chairman. The following attended these meetings: themembers of the Coordination Office; the chief, the executive officer,or another representative of each headquarters office engaged infreeze activities; and the OEP Historian.2 The meetings weredesigned to ensure that all offices were following compatiblepolicies, to provide a forum for discussing problems and, if possi-ble, to solve problems on the spot. The strong spirit of cooperationthat prevailed enabled Lindjord to resolve most problems withinthe meeting, but in a few instances the final decision was deferredto the Director.

At the beginning of these meetings the participant from eachoffice turned in a brief written report on the activities in his area.These reports were assembled and distributed that evening as theDaily Economic Stabilization Report to the Director.

The executive officers spoke for their chiefs at CoordinationMeetings and subsequently informed them and their staffs ofactions taken. These officers played a key role in the freeze becausethey maintained an overview of stabilization matters within theirrespective offices and could respond instantly on specific problemsaffecting their areas of operation.

Lincoln himself played the leading liaison role with other Fed-eral agencies at the national level. His most important functionsin this connection were performed through his membership onCLC and the Council's Executive Policy Committee. In his workwith these bodies, he had the support of his Policy and GuidanceLiaison Office, headed by Mr. Louis Neeb. Through this office OEPfunneled to EPC and CLC its proposals for actions on policy issuesand guidance.

Another important link with CLC was the Executive Secretaryof EPC, who was provided by OEP. This official attended daily

2 The Assistant to the Director for Administration, Mr. J. R. O'Connell, theSpecial Assistant for Regional Affairs, Mr. John P. Cannon, and the Chief of theCorrespondence Section, Mr. Douglas Johnston, usually attended these meetings. Theexecutive officers who usually attended were: Mr. William Baird for the OperationsOffice, Mr. Orcutt P. Drury for Resource Analysis, Major John Simpson for theGeneral Counsel, Mr. Spence Perry for Exceptions and Exemptions, Col. HowardM. Steele for Congressional and Public Affairs, Mr. Lloyd Eno for Policy Questions,and Mr. John Chesley for Information and Analysis.

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MANAGING THE FREEZE

meetings of EPC and explained to OEP's Policy Questions andGeneral Counsel staffs the actions taken at these meetings.3

Liaison with the IRS and ASCS National Offices was maintainedthrough IRS and ASCS representatives in the Operations Office,frequent visits, telephone calls, continuous courier service, and, inthe case of IRS, use of facsimile equipment. Copies of all reports,instructions to the field, guidance papers, press releases, and othersignificant documents were rapidly distributed to these offices. TheOEP, IRS, and ASCS offices in Washington coordinated with eachother all guidance on operational procedures before sending it totheir respective field offices. These techniques helped to ensureeffective working relationships among the three agencies through-out the freeze.

Personnel from other Federal agencies who were assigned to thePolicy Questions, Operations, and General Counsel's Offices playedan important but informal liaison role. They used their homeagency connections to supplement their own expertise and kepttheir home agencies informed of important developments in thefreeze.

The Compliance Branch of OEP's General Counsel's office hada valuable liaison role. Through it, the Department of Justiceprovided current information to OEP on the status of suits broughtagainst the Government and of private suits involving freezematters, as well as the status of suits filed by the Government toenforce the economic stabilization program.4

Regional Offices

The Operations Office provided the principal means for co-ordinating activities at the regional level, but the Director alsoused other coordinating techniques, including direct telephonecontacts with his Regional Directors. Deputy Director Trent madea number of visits to the Regional Offices. One special assistant,E. R. Heiberg, kept regional activities under surveillance andvisited the Regional Offices to note and discuss special problems.The Special Assistant for Regional Affairs, John Cannon, helpedexpedite the solution of regional problems and reported daily to

3 E. R. Heiberg, After Action Report, November 12, 1971, p. 1. The position ofExecutive Secretary was held in turn by Richard L. Berkman, G. Lee Butler, andPatricia Spencer. Butler took over Neeb's liaison functions when the latter movedto the Price Commission.

4 Bennett, Memorandum for the Director, November 10, 1971, Subj: The Conductof the Freeze, Office of the General Counsel.

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MANAGING THE FREEZE

the Director and at the Coordination Meetings on special aspectsof regional activities. The Director's Executive Assistant, ThomasSimmons, also helped coordinate sensitive aspects of regional activi-ties while continuing to assist the Director in his management ofOEP's nonfreeze functions.

Although there were some variations, the OEP Regional Officeshad substantially similar arrangements for internal coordinationand external liaison. Internal coordination was accomplishedthrough such traditional devices as central direction, staff meetings,informal conferences, and daily reports. In some Regions, responsi-bility for reports and correspondence control was assigned to anadministrative or operations officer; in others, the Deputy Directorsupervised such activities.

External liaison was accomplished by a variety of means. TheRegional Director usually played the dominant liaison role withthe Federal agencies in his Region. But in some cases most of theliaison activity was delegated to an administrative officer. All theRegional Offices had an IRS official and an ASCS official assignedfor liaison with their respective agencies. Close liaison was alsomaintained between the OEP regional public information officesand the corresponding offices of the Internal Revenue Service.

In each Region the assistant U.S. Attorney who worked in theOEP office was the main link with the Department of Justice. Heconsulted with the IRS and the OEP Regional Directors on mattersof enforcement and was responsible for the documentation of Po-tential Court Cases.5

All Regional Directors maintained liaison with the State gov-ernors and mayors of large cities in their Regions, and somedesignated a specific member of their staff to serve in this capacity.Each of the governors appointed a member of his staff to serve asthe principal point of contact with OEP. Some Regional Directorsestablished special liaison arrangements with mayors of large cities.

These arrangements contributed to a closely coordinated effortat the regional, State, and local levels. OEP Regional Directors, intheir after-action reports, stated that relationships with IRS andASCS were generally excellent, although there were instances ofstrain between some OEP Regional Offices and the IRS offices.ASCS activities were never of a volume or complexity to causemuch strain, and no problems were reported.

5 See p. 119.

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MANAGING THE FREEZE

COMMUNICATIONS AND OPERATIONAL CONTROL

The National Office's principal interface with the field was theOperations Office, which was under the direction of Mr. EugeneJ. Quindlen. His Special Assistant, Mr. William D. Baird, wasnamed executive officer. The Operations Office was organizedfunctionally into an Operations Center and Communications, In-quiry Review, Agency Coordination, and Reports Sections.6 Initi-ally this office was also OEP's main point of contact with the public,as it handled telephone inquiries from all over the United States.By the second week, however, OEP Regional Offices and IRS andASCS field offices had taken over most of this activity. Also, by thistime, the newly created Correspondence Section and the greatlyexpanded Congressional and Public Affairs Office were respondingto public inquiries at the national level. Thus, on August 27, theOperations Office was relieved of its task of responding to telephonequeries from the public.7

Operations Center

The Operations Center served as the hub of communicationslinking the OEP National Office with other Federal agencies inWashington and with all participating field offices. Quindlenselected three senior staff members to direct activities in the Op-erations Center on a rotational basis: Mr. Leonard Reese, Mr.Avery E. Kolb, and Mr. Wayne Althaus. The Center was in busi-ness on the first day of the freeze and functioned on two 8-hourshifts throughout most of the freeze period. It was the focal pointfor information and guidance to the OEP Regional Offices andthe IRS offices. It was the central point for collecting, collating,and distributing information and messages flowing to the NationalOffice from the field structure and the main vehicle for distributingfreeze information within the National Office. It maintained arunning file on incomplete actions and kept the Director and theOEP management staff informed of the status and progress ofprogram implementation. As a central depository of informationon operational aspects of the freeze, the Center maintained fileson guidance issued by the OEP Director, outgoing and incoming

6 The Inquiry Review and Agency Coordination Sections are discussed on pp. 68-70.and the Reports Section on pp. 70-73.

7 OEP Press Release 407, August 27, 1971.

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MANAGING THE FREEZE

messages, incomplete actions (action suspense files), reports fromthe Regions, and other operational matters.8

Communications Section

The Communications Section was developed from the austereprefreeze communications capability that served OEP's NaturalDisaster Operations Center. This capability consisted principallyof a Teletypewriter Exchange Service (TWX) terminal, a facsimile(FAX) terminal, and two secretaries experienced in their opera-tion. The facilities and staff were rapidly expanded. By the endof the second week, the Communications Section had two TWXterminals, two FAX terminals, and a GSA Advance Record System(ARS) terminal. The TWX system is owned by Western Union,while ARS is owned by and serves the Federal Government. Inboth of these systems, a message is typed into the sending terminal,transmitted over telephone lines, and retyped by the receivingterminal. Facsimile transmission also uses telephone lines, but re-produces an exact facsimile of the original.

The Communications Section was headed by Mr. Robert Mills,who was drawn from OEP's Government Preparedness Office. Hewas assisted by a communications supervisor from the U.S. ArmyInteragency Communications Agency (USAICA) and seven ex-perienced teletype operators, six from the USAICA and one fromGSA. This staff transmitted, processed, and accounted for all mes-sages, and by the end of the second week was effectively handlingOEP's requirements for TWX and facsimile communications.During the period August 15 to November 12 it handled some1,900 outgoing and 2,500 incoming messages.

OEP developed a diverse, flexible, and versatile communicationssystem during the freeze. This system provided a rapid and reliablemeans of transmitting orders, requests, and information to thoseadministering the freeze and receiving feedback from the field.Figure 6 shows those means of communication other than tele-phone and mail contacts that were available to various officesinvolved in administering the freeze.

Communication Within the System

Though usually taken for granted, meetings, telephone contacts,the mails, and messenger services were important channels of com-

5 OEP Operations Center Standard Operating Procedure, October 24, 1971, p. 22a.

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MANAGING THE FREEZE

FIGURE 6

FLOW OF COMMUNICATIONS


EXECUTIVEPOLICY

COMMITTEE COMP

U

OTHERDEPARTMENTS

ANDAGENCIES

NATIONALOFFICE OF EMERGENCY

PREPAREDNESS

ASCSNATIONAL

OFFICE

IRSNATIONAL

OFFICE

ARS

ASCS50 STATEOFFICES

OEP10 REGIONAL OFFICES

FAXIRS

7 REGIONAL AND58 DISTRICT

OFFICES

ASCS2819 COUNTY

OFFICES

IRS302 SUBDISTRICT

OFFICES

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MANAGING THE FREEZE

munication. The freeze greatly increased requirements for mes-senger service, and additional messengers were added quicky atboth the National and Regional levels. The U.S. Postal Service wasused to distribute some types of operational and administrativeguidance and for the transmission of bulky reports.

Requirements for telephone services increased greatly under theimpact of expanded staffs and accelerated activity. To meet theserequirements telephone workers put forth an all-out effort toinstall additional service. By the end of the first week of the freeze,the number of telephone stations in the national headquarters hadalmost doubled, and those in the Regional Offices had increasedby several times.

Telephones were constantly used for contacts between head-quarters and the field. Both commercial telephone service and theFederal Telecommunications System (FTS) connected all Federalagencies involved in administering the freeze, with FTS being theofficially preferred channel. The telephone was usually used whenthe national staff requested urgent ad hoc reports on conditionsin the field. Occasionally, official directives and instructions wereinitially transmitted by telephone, with hard copy coming later.Facsimile transmissions were sent by telephone, almost always byFTS, and the telephone was essential to the computer-based systemdiscussed later in this chapter.

The OEP Director kept in close contact with his RegionalDirectors by telephone. He talked to one or more of them in-dividually almost every day, and on several occasions he talked withthem as a group in telephone conferences. To ensure an open linefor incoming calls from the National Office, two unlisted com-mercial telephones were installed in each OEP Regional Office.To prevent these phones from being used routinely, the numberswere known only by senior officials. The Special Assistant forRegional Affairs provided a "hot-line" service for expediting urgentactions between the Regions and the National Office when theDirector and Deputy Director were not available.

While the Operations Center used telephone channels exten-sively, it sent most official messages to the IRS and ASCS NationalOffices and to the field by ARS or facsimile. These means not onlyexpedited the flow of essential information, but by producing hardcopy they also facilitated record-keeping and the monitoring ofsuspense files, both highly essential to OEP's central control system.Hard copy communications from the Operations Center were num-bered in three series: ALPHA messages, addressed to all OEP

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MANAGING THE FREEZE

Regional Offices, IRS District Offices, and the IRS and ASCSNational Offices; BRAVO messages, addressed to all OEP RegionalOffices; and CHARLIE messages, to single addressees.

Facsimile channels were especially useful for transmitting for-mats, official forms, news items, and material such as legal docu-ments in compliance cases that had to be transmitted without error.Since facsimile messages were transmitted by telephone, they couldbe sent to any office with a telephone connection and compatiblefacsimile equipment. OEP's National Office could send facsimilemessages to all OEP Regional Offices and to the IRS National andDistrict offices, but not to ASCS offices inasmuch as their facsimileequipment was not compatible with that of OEP. ASCS weeklyreports were collected by the State offices and FAX'ed to the ASCSNational Office, where a consolidated weekly report was preparedand submitted to OEP.

During the course of the freeze, OEP's communications capa-bility was increased by the development of a computer-based in-formation system known as EMISARI (Emergency ManagementInformation System and Reference Index). EMISARI served twoimportant purposes: it was an element of OEP's operational feed-back and reporting system (described later in this chapter), andit was a supplementary channel for disseminating guidance andinformation to the OEP Regional Offices. It also afforded an addi-tional channel for person-to-person communication among theRegional Offices as well as between the Regional Offices and theNational Office.

Data stored in EMISARI on a constantly updated basis includedCLC rulings and interpretations in question-and-answer form;summary statistics on requests for exemptions and reports of viola-tions; briefs of all rejected requests for exemptions, briefs ofpertinent news items, and selected economic indicators. By use ofa key-word search technique, specialists could retrieve items fromEMISARI in a display tailored to individual needs.

EMISARI connected the OEP National Office with CLC andthe OEP Regional Offices by means of UNIVAC terminals. Sinceeach terminal permitted the insertion of questions as well as theinsertion and retrieval of information, the system constituted acommunications channel as well as a storehouse for information.EMISARI was used extensively by those who availed themselvesof its special capabilities, but was not widely adopted as a person-to-

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MANAGING THE FREEZE

person communications system.9 During the last few weeks of thefreeze, the IRS National Office was also tied into this computersystem to facilitate the transfer of information in the transitionperiod.

Communications with the Public and Outside Agencies

Administration of the freeze also required frequent communica-tion with Members of Congress, Federal and State agencies, andthe general public. Much of the communication was face-to-face, inthe form of walk-in visits at the OEP-IRS-ASCS offices, OEP staffappearances before public groups, and Regional Directors' visits toGovernors and other State officials to explain various aspects ofthe freeze. The telephone, however, was the most frequently usedlink between those administering the freeze and the general public,the Congress, and the press. Altogether, the vast majority of theapproximately one million public queries about the freeze wereinitially raised by telephone, and most were answered the sameway.

The importance of the U.S. Postal Service as a communicationschannel is indicated by the approximately 55,000 letters from thepublic addressed to OEP about some aspect of the freeze.10 Mailchannels were also used to send printed Stabilization ProgramGuidelines and other materials, including official correspondence,to Governors and State officials.

In contacting Governors and other State officials, OEP frequentlyused the National Communications Network, which the U.S.Army Strategic Communications Command operates for the De-fense Civil Preparedness Agency. This system, known as NACOM-I,can send TWX messages to these State officials via the StateEmergency Operating Centers. OEP's less urgent communicationswith these officials, however, went through the Regional Offices.

OEP used the press, radio, and television extensively to supportits public information program. Use of the media and other com-munications channels for this purpose is discussed in Chapter VII.

9 The EMISARI System was designed by Dr. Murray Turoff of the OEP Informa-tion Systems Division. A brief, nontechnical account of the system's design, develop-ment, capabilities, and characteristics is given by Robert Kupperman and RichardH. Wilcox in OEP Report ISP-108, "EMISARI-An On-Line Management Systemin a Dynamic Environment," May 1972.

10 Approximately 52 percent of these letters were mailed to OEP Regional Offices,which redirected about 6,000 to the Internal Revenue Service. OEP Weekly Sum-mary Report to CLC Chairman, November 13, 1971, p. 11.

65

474-893 O - 72 - 6


MANAGING THE FREEZE

RESPONDING TO PUBLIC INQUIRIES

The approximately one million inquiries generated during thefreeze came from people in all walks of life. Inquiries entered themanagement system at all levels through letters, telegrams, tele-phone calls, and walk-in visits. Thirty-nine percent of the questionsconcerned prices, 30 percent wages, and 31 percent rents.

The OEP National Office had three divisions that handled in-quiries: (1) a Correspondence Section handled correspondencecoming to the National Office; (2) a greatly enlarged Congressionaland Public Affairs Office handled all inquiries from the press andtelephone inquiries from Congressmen and Senators; and (3) anInquiry Review Section in the Operations Office handled questionscoming from the field via the OEP Regional Offices.

Correspondence Section

The general public was advised to direct questions and com-plaints to the local IRS and ASCS offices, and the great majorityof people who asked questions about the freeze did contact theseoffices. A substantial number did not, but wrote letters to the OEPNational Office, Secretary Connally, other members of CLC, orthe President. Rather than rerouting these letters to the fieldoffices, OEP set up a special Correspondence Section to handlethem. Lincoln established this section as a high quality operation,using two of his best young staff members, Douglas Johnston andWilliam Fletcher, to head it. They reported to the Director with-out intermediaries. The professional nucleus of this section wasprovided by young employees (including some on "intern" status) ,who quickly built an esprit that carried them through the chal-lenges of the freeze.

The Correspondence Section routed to the appropriate Federalagencies in Washington letters with fairly simple questions thatcould be answered on the basis of existing guidelines. Wage ques-tions, for example, were sent to the Department of Labor. Ques-tions cutting across several areas but requiring only minimuminterpretation of existing guidance were answered directly by theCorrespondence Section. It routed all other mail according toareas of responsibility—to Exceptions and Exemptions for requestsin that area, to the General Counsel for rulings and interpreta-tions, and to Policy Questions for issues requiring new guidance.

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MANAGING THE FREEZE

The Correspondence Section tried to keep its backlog of un-answered letters below a 3-day average intake, and after it had beenoperating a few weeks it was generally successful in meeting thisgoal. Letters from Members of Congress often required more care-ful staffing than ordinary letters and usually took longer to answer.There was also a substantial delay in answering letters that raisedcomplex legal questions or issues on which there was no CLCguidance.

During the 90-day period, the Correspondence Section processedmore than 27,000 letters, including more than 3,000 from Membersof Congress. A record of this correspondence was entered into thecomputer system, which provided a comprehensive printout forquick reference and also facilitated control of follow-up cor-respondence.11

Congressional and Public Affairs Office

The Congressional and Public Affairs Office (CPA), under thedirection of Mr. David J. Pattison, handled all questions fromthe press and all questions raised in telephone calls from Membersof Congress. CPA greatly expanded its staff with detailed personnelto meet the onslaught of freeze business.

When CPA could not answer congressional inquiries on thebasis of information on hand, it usually asked the callers to submittheir questions in writing. In such cases the incoming letters wereprocessed by the Correspondence Section, as described above. Tele-phone calls from congressional offices ranged from an average of200 calls a day in the first weeks of the freeze to a low of about 40a day later on. In urgent cases, the CPA staff immediately soughtanswers from the appropriate OEP office and, when necessary, fromthe CLC staff, and relayed them promptly to the Member ofCongress.

Questions from trade associations, the press, and the mediagenerally averaged around 400 per day during the first few weeks,leveled off to around 100 per day, and rose again in the last fewweeks as callers sought information on the postfreeze program.12

Most of these questions dealt with operational matters and could beanswered from information on hand. If not, the answers were

11 Cost of Living Council, Economic Stabilization Program Quarterly ReportCovering the Period August 15 Through December 31, 1971 (Washington: Govern-ment Printing Office, 1972) , p. 13. Hereinafter cited as CLC Quarterly Report,August 15-December 31, 1971.

12 Howard Steele, After-Action Report on the Freeze, November 22, 1971.

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MANAGING THE FREEZE

quickly obtained from the appropriate OEP staff office and givento the media. Where questions involved new policy guidance, CPAreferred the callers to the CLC staff.

Inquiry Review Section

Approximately 80 percent of the public's questions were receivedinitially by local IRS and ASCS offices. Table 3 gives an OEPregional breakdown of OEP-IRS inquiries for the period August28 to November 9, 1971. By referring to OEP's published guidance,

TABLE 3.—Number of Inquiries by OEP Regions and Percentages by Category a

August 28-Novernber 9

TotalRegion Inquiries Wage (%) Price (%) Rent (%)

1-Boston 63,275

2-New York 183,379

3-Philadelphia 81,100

4—Atlanta 69,389

5-Chicago 146,140

6-Dallas 51,890

7-Kansas City 33,392

8—Denver 21,925

9-San Francisco 123,194

10-Seattle 27,794

Total 801,478b

a The figures for each Region include all inquiries received by IRS and OEP inthat OEP Region.

b If inquiries received before August 28 and all inquiries received directly at theNational Office and by ASCS are added to this figure, the grand total of inquiriesreceived comes to about one million.

the ASCS and IRS offices were able to answer most questions im-mediately. When the office receiving a question could not providean answer, it referred the question to the next higher level in thesystem.13 The offices participating in this information system wereASCS county offices, IRS Subdistrict and District Offices, OEPRegional Offices, and the OEP National Office.14 OEP Regional

30

22

33

35

34

36

40

35

28

32

30

303736

4440

47

4236

38

48

39

4041

31

21

26

16

18

29

34

20

31

13 ASCS county offices referred their questions to the nearest IRS office.14 To provide a uniform basis for reporting and controlling responses to public

contacts, OEP furnished all ASCS and IRS offices with a single, standardized checklist form. See Robert Kupperman, Memo to Regional Directors, August 26, 1971,Subj: OEP Form 401-OEP Contact Record.

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MANAGING THE FREEZE

Offices, making use of official guidance and agency experts assignedto them, were able to answer the vast majority of questions referredto them by IRS as well as the 28,000 letters addressed directly tothem. The Regions did, however, forward to the National Officeabout 1,100 questions they were unable to answer.

Questions coming from the Regional Offices were received inthe National Office's Operations Center. Some were addressedspecifically to the General Counsel's Office or to the Office ofExceptions and Exemptions, and were referred to these offices. Theremainder went to the Inquiry Review Section, which was directedby Mr. Arnold C. Lewis.

In some instances the Inquiry Review Section was able to sendan immediate reply based on standard answers in recently availableguidance or on replies developed for similar queries from othersources. The great majority of questions, however, were referredto the agency representatives in the Agency Coordination Section,who provided draft responses. During the first few days, questionswere directed to these experts without regard to their specializedknowledge. Subsequently, however, they were asked to advise onstabilization matters related to their normal duties. For example,Treasury personnel provided advisory opinions on the surchargeon imports, and HUD personnel on rents and housing.15

After advisory opinions had been received from the AgencyCoordination Section, Inquiry Review referred to the GeneralCounsel those questions involving legal interpretations and to thePolicy Questions staff those involving issues for which there was noapproved guidance. These policy issues were considered by CLCor its Executive Policy Committee.

When CLC action resulted in new guidance on the subject, thiswas widely disseminated and the Inquiry Review Section notifiedthe Regional Office initiating the question of the applicability ofthe new policy statement to its specific inquiry. When an interpre-tation given by the National Office was thought to have generalapplicability, an information copy of it was sent to all RegionalOffices.

Almost all of the 1,100 policy questions which the Regions re-ferred to the National Office required at least some processing bythe General Counsel's Office. This office also provided legal in-terpretations for some 2,200 questions referred to it by the Cor-

16 These experts contributed to OEP's daily report to CLC by highlightingsignificant items within their areas of expertise, assisted in the preparation of certainstudies and surveys and in drafting the Stabilization Program Guidelines, and oc-casionally participated in conferences with industry representatives.

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MANAGING THE FREEZE

respondence Section and the Policy Questions Office. When anyinterpretations were of general applicability, the Operations Officedispatched them to all Regional Offices for guidance.

During the freeze it was suggested that the system of handlinginquiries in the National Office be revamped to reduce the possi-bility of inconsistent responses. It was pointed out that the systemin use permitted four sections in the National Office to issueinterpretations—Inquiry Review, Correspondence, General Coun-sel, and Congressional and Public Affairs. There was a possibilitythat one office's responses would not be consistent with those com-ing from another office. The Director was aware of the organiza-tional problem, but declined to change the system in the midstof the freeze because of the program's relatively short duration.Inconsistency of response was minimized by the fact that personnelresponding to public questions were all guided by the same,constantly updated policy statements. The daily CoordinationMeetings and other coordination mechanisms also helped. Thedetermination as to which questions called for a new policy state-ment was made in some cases by the Policy Questions Office andin the final analysis by Lincoln himself.

OPERATIONAL FEEDBACK AND REPORTING

Public reaction to the freeze was widely discussed by the newsmedia, by pollsters, and by popular magazines and businessjournals. The most direct expression of public attitudes, views, andreactions took the form of telephone calls and letters to thoseadministering the freeze. While these provided some informationon the progress of the freeze, Lincoln also felt it necessary to requirethe Regional Offices and the divisions of the National Office tosubmit regular reports of their activities.

During the first few days of the freeze, a reporting system washastily created by the OEP staff. As the freeze organization settledinto place, the Reports Section became a separately organizedactivity in the Operations Office, with a regularly assigned staffheaded by Mr. George Hotchkiss.

Lincoln charged Deputy Director Trent with the responsibilityfor developing a standardized reporting system that would providereliable information on public reactions to the freeze and recordimportant developments in its implementation. Trent assigned thetask to Mr. Robert H. Kupperman, Deputy Assistant Director for

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MANAGING THE FREEZE

Information and Analysis. The system that evolved after a fewweeks was a Daily Economic Stabilization Report to the Director,a Daily Report to the Cost of Living Council, and a Weekly Reportto the Cost of Living Council. Kupperman's staff produced theweekly reports, and the Coordination Office produced the twodaily reports, as explained below. These standard reports weresupplemented by numerous ad hoc reports on particular problems.

Daily Economic Stabilization Report

The Daily Economic Stabilization Report kept the Directorinformed of significant developments and problems connectedwith administration of the freeze. The report was prepared frominputs by the OEP Regional Offices and by major headquartersoffices involved in the freeze. The Special Assistant for RegionalAffairs and the Reports Section of the Operations Office submittednarrative accounts of regional activities. Until October 6, the Re-ports Section was also responsible for collating regional statisticalsummaries on correspondence, exemptions, inquiries, and otheractivities. After October 6, the data on these activities were enteredinto OEP's on-line computer system and were readily available tothe National Office in summary form. The Information SystemsOffice was thenceforth responsible for providing the daily statisticaldata when it was requested.

All inputs, whether from the Regions or the National Officedivisions, were submitted at the daily 5:00 p.m. CoordinationMeeting; the coordination staff consolidated them into a dailyreport to the Director. This report was used as an in-house OEPmanagement tool. It provided a forum for free discussion of prob-lems—each office had a clear shot at the Director's evening reading.

Daily and Weekly Reports to CLC

During the first several weeks of the freeze the Director provideda Daily Report to the Cost of Living Council, covering the high-lights of the freeze. The developments and data included wereessentially a digest of those in the Daily Economic StabilizationReport to the Director, polished and condensed by the Coordina-tion Office. The Daily Report to the Council was discontinuedafter September 25, since the Weekly Report and occasional specialreports were considered sufficient to meet the Council's needs atthat stage of the freeze.

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MANAGING THE FREEZE

The first official weekly report to the Council covered the periodbeginning September 4, 1971. The format of the report reflectedOEP's initial reporting experiences and also CLC specifications ondata to be reported. The report was prepared by the Informationand Analysis Office from material submitted by the OEP RegionalOffices and by the major National Office divisions involved in thefreeze. Data submitted by an OEP Regional Office reflected theactivities of that office as well as those of the IRS field offices in theRegion. The activities of the ASCS field offices were not covered;however, 10 percent of the ASCS offices did report data on thepublic inquiries they received. These reports, transmitted to theOEP National Office through the ASCS State and National Offices,enabled OEP to estimate the number of inquiries from the Nationas a whole.

The Weekly Report summarized the general situation. It high-lighted developments concerning policy formulation and promulga-tion, interpretation of policy, complaints of alleged violations,exceptions and exemptions, suits involving the wage-price freeze,congressional and public affairs, and selected economic indica-tors. Statistical data on inquiries, alleged violations, exceptions andexemptions, and litigation were included.

The Systems Evaluation Division prepared the statistics on in-quiries from data submitted by the Regional Offices. Until October6, the tables were prepared by hand; subsequently, they could beobtained as printouts from EMISARI. This was possible becauseOEP had developed a special computer program called IRS SUMwhich aggregated the IRS data and the Regional Office data andautomatically inserted the Regional summaries into EMISARI.The National Office could retrieve the information in nationwidesummary tables as well as summary tables for each OEP Region.

The Bureau of the Census compiled more detailed statistics onalleged violations and on requests for exemptions. The OEP Na-tional and Regional Offices and IRS District Offices gathered dataon these activities in considerable detail and sent them to theBureau of the Census for keypunching and computer processing.The data on suits were prepared by the OEP General Counsel'soffice in coordination with the Department of Justice.

Lincoln used the reports to identify problem areas, but neveracted on the problem without obtaining additional information.He used the Coordination Meetings, his Special Assistant forRegional Affairs, direct phone calls, and other means to verifyfacts and judgments, particularly in the first few weeks of the freeze.

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His careful testing of the reported problems in the early weeksimproved the objectivity and balance of reports received duringthe remainder of the freeze.

Some Regional Directors indicated at the end of the freeze thatthey had found National Office requirements for reports extremelyburdensome. They found the preparation of the statistics to be atime consuming process and noted that the requests for specialreports that came from different parts of the National Office werenot adequately coordinated and sometimes duplicated each other.Statistical accuracy suffered because of the frequent shifts in re-porting formats and some confusion as to the definition of report-ing categories.16

During the freeze, Lincoln had realized the need for greatercoordination of requests for special reports, and he made theOperations Office the focal point for all such requests. Stabilizationof the format for routine reports also lessened the workload in theRegional Offices.

10 See Regional Directors' After-Action Reports to OEP Historian.

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IV

Policy and Guidance

LEGAL BASE

While the legislative authorization for the freeze was containedin the Economic Stabilization Act of 1970, the broad outlines offreeze policy were set forth in Executive Order 11615. The orderlimited prices and wages during the freeze period to levels attainedin a substantial volume of transactions by each individual or busi-ness during the 30-day period ending August 14, 1971. This rulewas qualified, however, by a provision in the Economic Stabiliza-tion Act of 1970 that ceilings could not be established below levelsprevailing on May 25, 1970.

The provisions of the Executive order were clarified in the daysfollowing the President's announcement of the freeze. After receiv-ing authority from CLC Chairman John B. Connally to "imple-ment, administer, monitor, and enforce" the program,1 OEP Di-rector George A. Lincoln issued Economic Stabilization Regulation1, which specified more precisely the provisions of the order anddefined 13 key terms. The regulation also exempted stocks, bonds,and exports from the freeze. OEP did not issue any additionalEconomic Stabilization Regulations, but it amended the firstregulation five times to adjust terminology and clarify the datesof the freeze and of the base period.2 The documents on whichimplementation and enforcement of the freeze rested were, there-fore, substantially complete as of August 20, 1971.

All further policy determinations were made on an ad hoc basis,in response to specific problems that arose, or were expected toarise, during the freeze period. As will be explained more fullylater, policy decisions were circulated within Government channelsin the Stabilization Program Guidelines (SPG) and were publishedin the Federal Register as Economic Stabilization Circulars (ESC).

1 CLC Order No. 1, August 17, 1971.2 See Exhibit 9 for the regulation and amendments.

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This guidance differed from the regulation discussed above in thatits legal force was not as broad. Each of the 26 ESC's began withthe statement:

This circular is designed for general information only. The statements hereinare intended solely as general guides drawn from OEP Economic StabilizationRegulation No. 1 and from specific determinations and policy statements by theCost of Living Council and do not constitute legal rulings applicable to caseswhich do not conform to the situations clearly intended to be covered by suchguides.

The Circulars were not intended, therefore, to have the kind ofbroad application that would be appropriate to a more carefullycodified set of Government regulations. The statement makes itclear, however, that they were issued as having legal force in thesituations "clearly intended to be covered," and they were so in-terpreted by the courts. Two suits which the Government broughtagainst landlords and won, for instance, involved interpretationsof the transaction rule and the rule on capital improvements.3

OPERATIVE PRINCIPLES

The possibility of formulating a codified set of regulationstailored to various sectors of the economy was considered but wasrejected as inappropriate to a short-term control program. Thegoal during the freeze was to give authoritative answers to specificquestions that arose regarding the extent of coverage of the freezeorder and the ways in which it affected particular transactions.The system of price and wage controls suited to a long-rangeprogram was not established until the beginning of Phase II.

The coverage of the freeze was comprehensive. Although therewere specific exceptions, such as raw agricultural products andexports, the freeze was intended to affect all segments of theeconomy. Application to concrete situations was governed by theneed to be consistent, stringent, and reasonable.4

Consistency, a requisite of any government program, was ofspecial importance in the freeze because of the decisive economicimpact of the decisions. Both the policies set by CLC and theinterpretations made by OEP had to give equal treatment to allthose who found themselves in comparable situations.

Stringency was called for because of the nature and goals of

8 See p. 127.*G. A. Lincoln, Remarks Before the National Association of Food Chains,

September 8, 1971; and CLC Quarterly Report, August 15-December 31, 1971, p. 6.

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the freeze: as an emergency measure of brief duration, it was bydefinition an inflexible program. Most individuals and businessesthat were caught at a disadvantage were told that little reliefwould be available until after the 90-day period. This policy meantthat loopholes were excluded from the guidance as far as possible,only a few exemptions were granted, and all violations, no matterhow minor, were subject to enforcement measures.

Despite this "hard line," however, a policy of reasonableness wasmaintained. There were regulations, for example, allowing sea-sonal price increases, the pass-through of some taxes, and increasesin some insurance premiums.

FORMULATION OF GUIDANCE

The freeze administration utilized elements of several agenciesplus the newly formed CLC and its small staff. The short deadlinesand the sensitive nature of many decisions made it essential tohave close coordination among all agencies concerned, and a highlycooperative spirit did in fact prevail.

Most guidance was formulated in response to specific questionscoming from businessmen, landlords, unions, trade and professionalassociations, government officials, and individuals affected by thefreeze. Sometimes the answers were broadened to cover a widerfield than that specifically raised by the questioner, and someguidance was formulated in anticipation of questions that wereconsidered likely to arise.

In the early days of the freeze, Lincoln established proceduresfor channeling policy issues to the Executive Policy Committee(EPC) and CLC for answers. As explained in Chapter II, person-nel in ASCS, IRS, and OEP Regional Offices responded to ques-tions as they arose in all cases where existing guidance wasapplicable. In the OEP National Office, inquiries were answeredby the Inquiry Review Section, Correspondence Section, GeneralCounsel's Office, and the Office of Congressional and Public Affairs.When any of these offices decided that a question required a newpolicy determination, they sent it to Mr. Edward R. Saunders, Jr.,the Deputy Assistant Director for Resource Evaluation. His staff,greatly expanded to cope with freeze tasks,5 drafted suggested

5 From the normal staff of about 20, seven were sent off to another building tocontinue handling stockpile and industrial mobilization matters; the remaininggroup was expanded to 33 by personnel detailed from other agencies. This groupwas known as the Policy Questions Office during the freeze.

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answers to policy questions (and disseminated the guidance afterdecisions had been made). The drafts usually contained two ormore optional responses with the pros and cons for each and arecommended action. They were sent to the General Counsel, whosupplied any necessary legal precision to the wording and for-warded the drafts to Lincoln.

As a member of both the Executive Policy Committee and theCost of Living Council, Lincoln took the questions and proposedanswers to the meetings of these policymaking bodies. To assisthim in coordinating policy questions and decisions, he named Mr.Louis Neeb to a newly created post of Special Assistant to theDirector for Policy and Guidance Liaison. During the freeze Neebaccompanied Lincoln to meetings of EPC and CLC and co-ordinated the revision and refinement of policy statements thatthey directed.

In theory, everything that could be settled by an interpretationof existing guidance was handled by the OEP staff and only thosequestions requiring a new policy determination were sent to EPC.In fact, most questions with a major economic impact went toEPC. Since the line between interpretation and new policy washard to define anyway, Lincoln preferred to take the questions ofgreater impact to the daily EPC meetings for resolution. By follow-ing this procedure he kept the policy echelon informed of allsignificant issues, achieved coordination in a rapidly moving situa-tion, and assured broad participation in decisions in controversialcases.

The Executive Policy Committee chose one of the options,sometimes altering the wording, or directed either the OEP or theCLC staff to write a new statement. The most basic policy de-cisions and those that were particularly sensitive or controversialwere referred to CLC, but after the first week of the freeze EPCresolved about 90 percent of the questions itself.6 Although OEPwas the source of most of the questions and proposed answers,some came from the CLC staff and from other Federal agencies.Members of CLC sometimes presented policy questions from theirown areas of activity directly to the Council.7 The guidance wasput in question-and-answer form at first, but there was a gradualtransition to direct statements of policy as the issues became morecomplex.

6 Lincoln, Remarks to the Pay Board and Price Commission, October 22, 1971.7 Copies of the discussion papers submitted to EPC, with marginal notations of

actions taken, are kept in OEP's files. They are referred to in this history as EPCNotes.

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DISSEMINATION AND INTERPRETATION OF POLICY

Whatever the source of the proposals, all policy decisions wereturned over to Saunders for official dissemination. He sometimesfound it necessary to rephrase the policy statements in the interestsof consistency, clarity, or responsiveness to the original questions;these changes were worked out in coordination with the GeneralCounsel.

There was also an unofficial dissemination through the press andother media. The policy statements were released in Washington,at first by the Treasury Department and later by CLC and OEP,and in the Regions by the OEP Regional Offices. This publicdissemination is discussed in Chapter VII, but it should be notedhere that Regional Directors were cautioned not to rely on pressaccounts of policy decisions, since they did not always agree withthe officially disseminated guidance.

A high priority was placed on speed in developing responses topolicy questions. Once OEP had formulated a proposed responseto a question, Lincoln took it to the early morning EPC meetingand, if necessary, to the CLC meeting in late afternoon on the sameday. When EPC or CLC had approved a policy statement, OEPimmediately circulated it within headquarters, sent it by teletypeto OEP Regional Offices and IRS Regional and District Offices,and put it into the EMISARI computer system. Within a few days,10,000 printed copies of the guidance were distributed to 28 Fed-eral agencies, all OEP, IRS, and ASCS field offices, all State Gover-nors, and a few other organizations.

A loose-leaf manual called Stabilization Program Guidelines(SPG) served as the principal repository of official guidancethroughout the freeze. All material inserted into the SPG wascoded so that decisions in the same subject area would auto-matically appear under the same tab. The manual, which wasdesigned, printed, and in use before the freeze was a week old, wasgenerally acclaimed by OEP and IRS personnel as an indispensabletool for keeping track of the steady stream of policy statements.IRS, in cooperation with the Government Printing Office, handledthe actual printing and distribution of the original manual andthe materials to be inserted into it.

The SPG manual was not released to the public, but reportersand interested citizens could inspect copies at OEP and IRS offices.Some Regional Offices made it a practice to send copies of relevantguidance to State agriculture officials, public utilities, labor unions>

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and associations of bankers, real estate brokers, educators, andsimilar groups. Beginning on August 24, the Council distributed10 million copies of a small booklet, "The Wage-Price Freeze:Questions and Answers/' which contained the questions mostfrequently asked at that time. Copies were available at OEP, IRS,and other Government offices, including all local post offices.

Most of the guidance became available to the public when itappeared in OEP Economic Stabilization Circulars (ESC), whichwere printed in the Federal Register. OEP's Office of the GeneralCounsel reviewed all SPG material as it came out and adaptedit to a form suitable for the Register. The question-and-answerform was replaced by direct statements, and some other minorchanges in wording were made. About 70% of the SPG materialappeared in the 26 Circulars. Two compilations of this materialwere also published as Circulars 101 and 102, which pulled to-gether the guidance according to subject areas and made someminor changes in wording dictated by later clarifications or in-terpretations.8

The breadth of dissemination of policy decisions depended ontheir degree of applicability. Decisions that were relevant only tothe questioner were communicated to him by letter. Decisionsthat would be applicable to others were also published in theSPG manual, which was used by Government personnel in re-sponding to questions from the public. Determinations of broaderapplication were included in the Circulars and printed in theFederal Register, and much of this material was also included inpress releases.

No less important than the guidance itself was the prompt,authoritative interpretation of its provisions. As detailed in Chap-ter III, personnel in the OEP-IRS-ASCS network used existingguidance to respond to questions as they arose, forwarding upthe line those queries they were unable to handle. For the ap-proximately one million inquiries received during the freeze, the"last stop" for authoritative rulings was the OEP General Counsel,who issued rulings on about 3,300 questions. To handle theseinterpretations, as well as compliance work and preparation ofthe Economic Stabilization Circulars, the General Counsel's staffwas expanded from five to nearly 60, of whom 28 were attorneys.

Lincoln considered the ability to respond quickly to questions

8 Circulars 1-10 were replaced by Circular 101 on September 21, and Circulars11-20 by Circular 102 on October 22. Circular 102 contained a comprehensive subjectindex. These Circulars were available for public sale and enjoyed a wide distribution.

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an essential ingredient of successful freeze administration. He feltthat businesses and other organizations should not be required tooperate in the dark and that they would appreciate a promptresponse, even if it was not the one they had hoped for. RegionalDirectors gave the headquarters staff high marks for generallyprompt and adequate answers to their questions, but complainedof delays in getting guidance on some of the more complex issuesthat were referred to EPC or CLC, and of the vagueness of someguidance.9 The Regions included in their daily reports to theDirector a list of the questions they had submitted that remainedunanswered, noting how long they had waited for an answer. TheNational Office's goal was to reply to all questions within 3 days.

MAJOR POLICY DETERMINATIONS

As noted earlier, policy decisions were concerned mostly withdefining the coverage of the freeze order. This provided a muchsimpler set of directives than would have been necessary if anattempt had been made to allow a pass-through of cost increasesand similar adjustments. Nevertheless, the guidance that wasdeveloped reached a remarkable degree of complexity. About 450policy decisions were printed in the SPG manual, ranging fromsimple, one-line answers issued in the first weeks to elaborate ex-planations of policy that covered several pages. It is obviouslyimpossible to summarize or even catalog these policies here, buta few key decisions in each economic area will be discussed asexamples of the types of issues that arose.

Transaction and Seasonally Rules

A policy of basic importance to all elements of the economy wasthe use of actual transactions during a base period as the means ofdetermining ceiling prices. The Executive order set the terms:

Prices, rents, wages, and salaries shall be stabilized for a period of 90 daysfrom the date hereof at levels not greater than the highest of those pertainingto a substantial volume of actual transactions during the 30-day period endingAugust 14, 1971, for like or similar commodities or services.10

9 After-Action Reports from Regional Directors to the OEP Historian mentioneddelays in obtaining guidance on price lists and on the prices of school milk, woodproducts, railroad car demurrage, and ski facilities. The problem of vague or con-fusing guidance was associated mainly with wage contracts, teachers' salaries, andinsurance premiums.

10 Executive Order 11615, August 15, 1971, Sec. l.a.

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Economic Stabilization Regulation 1 provided the following defini-tions:

Base Period: . . . the period from July 16, 1971, through August 14, 1971, and,in the event that no transaction occurred in the latter period, the nearestpreceding 30-day period in which a transaction did occur: Provided, however,That prices, rents, wages, and salaries need not be established at levels less thanthose prevailing on May 25, 1970.Substantial volume of transactions: . . . The ceiling price is the price at or abovewhich 10 percent of the actual transactions during the base period were made,except that in the case of posted and effective prices during the base period, thebase period itself will be considered to have begun at the time of the increasein posted and effective prices.

When a question was submitted by a seller who had taken alarge order during the base period for delivery during the freezeand wanted to know whether this order constituted a "transaction,"the answer was:

A transaction takes place when the seller ships the product to the buyer, notwhen the order is received. In the case of a service, the transaction takes placewhen the service is performed.11

In ordinary business and legal usage, "transaction" can have arange of meanings, including an oral agreement, written contract,deposit, complete payment, or delivery. By defining transaction asdelivery (shipment), CLC made sure the freeze order would affectthe economy in the most decisive and immediate way possible.Except by requiring price rollbacks, there was no way the ordercould have been made more immediate; other options would havedelayed the impact to a greater or lesser extent.

Besides blocking price increases that were included in contractscalling for delivery during the freeze, this definition ruled outwage increases covered by previously negotiated contracts and rentincreases provided for under leases. All rent increases were stopped,even when advance deposits had been made or rent had been paidin advance, as long as occupancy had not occurred at the higherrental rates prior to August 15. The most heated dispute overapplication of the transaction rule concerned advance sales oftickets to sporting events.12 Many also questioned the rule allowingincreases in tuition and school room-and-board charges when ad-vance deposits had been made; this rule (discussed below) wasbased on the thesis that an educational institution performs partof its service to the student before the actual beginning of classes.

The use of the transaction rule had the evident purpose ofgiving equal treatment to prices, wages, and rents. It was necessary

11 ESC 7, September 2, 1971, Sec. 401 (e) ; ESC 101, Sec. 302 (1).12 See pp. 135-138.

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POLICY

to spell out in guidance, however, how it applied in each area,as will be seen in the following sections.

The seasonality rule also applied across the board to prices,wages, and rents. It permitted sellers to increase their prices to thelevels charged in the previous year if they could demonstrate thattheir prices had undergone "large and distinct fluctuations" at aspecific time in each of the 3 years prior to the freeze. Examplesgiven were Puerto Rican hotel rates, auto dealers' selling pricesat the time of introduction of new models, and wage rates forsome seasonal agricultural workers.13 Some important interpreta-tions of this rule were those that denied its applicability to fueloil and coal prices. A similar negative ruling was rendered in thecase of several potash producers, whose normal seasonal pricevariations had been disrupted in 1969 and 1970 because of domesticmarket aberrations related to international dumping.

Prices

Price ceilings were not as easy to determine as was popularlyimagined. Policy makers had to take into account such factors asseasonal discounts and promotional discounts offered during thebase period, quantity discounts, and differing prices in differentmarket areas. Specific rulings were made on subjects as diverse asbusiness mergers, advertising rates, foreign tours, State regulatedliquor prices, railroad freight rates, second hand cars and furniture,auctions, Christmas candy, trading stamps, and sale of real estate.14

This list is only the top of the iceberg, but is sufficient to givesome idea of the variety of problems encountered.

The more complex issues involved considerable staff work andwere not always put to rest by the first policy statement on thesubject. As the President's Council of Economic Advisers said:"Because of the complexities of the markets for many goods andservices . . ., it proved difficult to develop precise definitions thatapplied with equal effect in all situations." 15

The application of the transaction rule to prices was fairlystraightforward. Perhaps the most rigorous application was to long

13 ESC 101, Sec. 303. When auto dealers introduced 1972 models they were allowedto sell at the full list price of 1971 models instead of using the prices charged for1971 models during the base period, a period of traditionally large discounts. Seep. 134 for application of the seasonality rule to propane gas prices.

"ESC 101, Sees. 401-408; ESC 102, Sees. 303 and 401-405. See Chapter V forexceptions and exemptions.

15Annual Report of the Council of Economic Advisers, January 1972 (Washing-ton: Government Printing Office, 1972) , p. 77.

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term contracts calling for delivery during the freeze. Certain cast-ings, forgings, and special machines are produced for variousindustries in "job shops" using designs that are unique for eachpurchaser. Because of the high cost of tooling, quantity productionruns are made at infrequent intervals, sometimes 2 or 3 years apart.When contracts for such items called for delivery during the freeze,a seller was held to the price of the previous delivery of the sameproducts, even if his contract called for a higher price and produc-tion costs exceeded the ceiling price.16

A similar ruling was given in the case of commodity futures thatmatured during the freeze; regardless of the contract price, theceiling price was determined by deliveries during the base period.17

Futures contracts for raw agricultural products were not affectedby the freeze because of the exemption of such products.

The policy of "reasonableness" was illustrated in such rulingsas the one upholding rate increases by public utilities. Underwidely used formulas, increased fuel costs in July resulted in rateincreases for August. Even though bills reflecting these increaseswere not prepared or sent out until September, the increases wereupheld on the grounds that delivery had taken place before thefreeze. The decision involved millions of dollars for some largeutility companies.18

As noted above, OEP applied the transaction rule to services bysaying the transaction took place when the service was performed.It was usually easy to date the base period transactions by this rule,but it proved difficult in cases where the performance includedseveral steps. An advertising company, for instance, usually com-pletes work on a magazine or television advertisement in severalstages, and the service might be thought of as having been per-formed for the purchaser long before the advertisement appearsin print or is seen by the public on TV. Adhering to a rigorousapplication of the transaction rule, however, OEP required de-livery of at least one unit of the final service (actual appearanceof the advertisement) in order to fix a transaction date.19

The transaction rule applied to renewals of insurance policies.If a rate increase was announced prior to August 15 and a sub-stantial number of transactions (renewals) occurred at the in-

16 ESC 102, Sees. 402 (5) , 403 (3) ."ESC 101, Sec. 403 (13) ; ESC 102, Sec. 403 (1).38 ESC 102, Sec. 406 (5) ; EPC Notes, September 17, 1971.10 SPG 3.1901.

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creased rates, then the higher rates could apply to the renewalsoccurring during the freeze.20

Premiums on group health insurance policies that are based onexperience-rating formulas are normally increased to reflect in-creases in such factors as average cost per claim and frequency ofclaims. Insurance companies were allowed to increase premiumson such policies during the freeze to reflect experiences on actualcosts and changed conditions of risk (such as the age-sex distribu-tion of groups) but were not allowed to reflect anticipated costincreases nor to use new formulas that w'ould result in higherpremiums.21

An atypical application of the transaction rule was made fortuition. The first ruling, which did not mention deposits, statedthat tuition increases that had been announced prior to August 15could take effect.22 A later ruling stated that tuition and roomand board increases had to have been confirmed by deposits duringthe base period.23 When it was later defined that a service trans-action takes place "when the service is performed/' 24 it was ap-parent that the rule on tuition did not conform to this definition.A new policy statement reiterated the rule—that tuition increasescould remain in effect if they had been announced and at least onedeposit had been received prior to August 15—and added thefollowing explanation:

This treatment of the student-school relationship is unique to tuition androom and board transactions and does not apply to any other form of transac-tion. . . . The use of prior announcement and payment to show completion oftransactions results from the unique arrangement schools have with their enrolledstudents. Although the level of service performed by schools varies with theschool year, certain year-round services are available to enrolled students, i.e.,access to research facilities (libraries) , administrative support, student guidanceactivities, etc.1'5

Many inquiries were received about the interpretation of thisruling, and many students and parents complained that tuitionsshould have been frozen along with their sources of income.Numerous organizations tried without success to apply the rationalefor tuition increases to other situations, such as the advance sale oftickets to college football games.

20 ESC 101, Sec. 407 (5,6).21 ESC 102, Sec. 407 (2).22 ESC 1, A u g u s t 24 , 1971, Sec. 407.23 ESC 3, August 28, 1971, Sec. 401 (b). The Circular did not include a statement

that ESC 1 was superseded, and this oversight led to some compliance problems.24 ESC 7, S e p t e m b e r 2 , 1971, Sec. 401 ( e ) .25 ESC 15, S e p t e m b e r 23 , 1971, Sec. 403 ( 1 ) ; ESC 102, Sec. 4 0 3 ( 5 ) . See a l so

p. 110.

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A seller could price a new commodity or service by applyingthe percentage markup he was receiving on his most similar itemor (if that rule did not apply) by using the prevailing price forcomparable items in the same area. A slight change in appearanceor slight functional modification did not, however, qualify aproduct as "new." 26 The 1972 model cars, for instance, were notconsidered new products, so the sticker prices on them were thesame as those on 1971 models. As noted above, the seasonalityrule allowed retailers to sell at the full sticker price instead offollowing the actual prices charged during the base period. Auto-mobile manufacturers who converted items that were optional on1971 models into standard equipment on 1972 models were allowedto include the normal price of the options in the prices chargedfor the 1972 models. On the other hand, new features that had notpreviously been offered as options, such as new anti-pollutionequipment, did not justify price increases.27

A manufacturer was not allowed to make a change in businesspractices as a way of circumventing the freeze.28 A seller could notreduce the quality of a commodity or service unless he reducedthe cost proportionately.29 A transportation company, for instance,could not eliminate a route or decrease frequency of service with-out reducing fares proportionately, unless the appropriate regula-tory agency stated that the reduction was due to a decrease indemand.30

Dues paid to organizations such as professional associations,unions, and country clubs were considered fees for services andthus were frozen. However, members could be assessed a proratedshare of the costs of increased services.31 Several compliance casesresulted from this ruling, including Recommended Courts Cases 32

against three unions, but no suits were filed.A ruling was issued in the early days of the freeze to the effect

that State and local taxes were not frozen. The principle followedin later clarifications was that government fees and service chargeswere frozen, but taxes were not. Thus, the freeze did not affectincome taxes, sales taxes, property taxes, license fees, or legalpenalties. It did, however, cover fees for water, gas, and sewer

26 ESC 101, Sec. 402 (4); ESC 102, Sees. 401 (1), 402 (1,2).27 CLC Quarterly Report, August 15-December 31, 1971, p; 19.28 ESC 102, Sec. 402 (4).29 ESC 101, Sec. 402 (9).80 ESC 102, Sec. 407 (11). See p. 135 for application to a local transit company.81 ESC 101, Sec. 403 (5); ESC 102, Sec. 403 (4).82 See p. 120.

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service, road and bridge tolls, and utility franchise fees.33 Merchantswere allowed to increase prices to cover increases in "surchargesor other sales or excise taxes/' but had to absorb increases in"property or business taxes." 34 This ruling caused some confusion,as there are many types of taxes in general use and even widervariations in the terminology applied to them. Two cities were inthe process of installing new parking meters (with increased rates)when the freeze was announced and had to backtrack becausethe parking fee was frozen.

The prices of commodities exported to other countries were notfrozen,35 but imported commodities were subject to the freeze.Increases in U.S. customs duties and tariffs, including the 10 per-cent surcharge imposed as part of the New Economic Policy, couldbe passed on to the ultimate buyer. This was true even if theimported item was transformed or incorporated into anotherproduct, as when an imported engine was used in an automobilethat was assembled in this country. Sellers were free to absorb thesurcharge themselves, but if they passed all or part of it on theywere obliged to specify the amount on the sales ticket or providethe information to the purchaser upon request.

Importers and resellers could also pass on other increases incosts of imports, such as price increases by foreign suppliers andincreases caused by fluctuations in world currencies, as long as theimported item was not physically transformed or incorporated intoanother product.36 These rules on imports had a significant impacton utility companies using imported fuel. They had to absorbincreases in fuel prices, since the fuel was transformed in theproduction of electricity.37

Wages

The prohibition of wage increases covered all forms of remunera-tion, including fringe benefits such as paid vacations, holidays,and employer contributions to insurance and pension funds. Theprohibition covered all wage earners, including military personneland employees of Federal, State, and local governments.88

33 ESC 1, August 24, 1971, Sec. 402; ESC 101, Sees. 406 (5), 407 (8), 410; ESC102, Sees. 401 (4), 407 (8).

34 ESC 102, Sec. 402 (8).35 Economic Stabilization Regulation 1, Sec. 4; see ESC 102, Sec. 401 (7) .^CLC Order No. 2, August 17, 1971; Economic Stabilization Regulation 1, Sec.

5; ESC 101, Sec. 404; ESC 102, Sec. 404.37 ESC 101, Sec 403 (10).38 ESC 101, Sees. 501, 502. See p. 104 for exceptions and exemptions.

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Economic Stabilization Regulation 1 connected the transactionrule with wages and salaries, saying that ''remuneration shall bebased upon a substantial number of actual transactions for servicesof like or similar nature." 39 The rule was applied to remunerationin a limited way, however. It did apply to fees charged by a doctoror lawyer; as with other purchased services, rates prevailing in atleast 10 percent of the transactions in the base period could bemaintained during the freeze.40 The rule was not applied, however,to wage earners by category. The fact that 10 percent of the em-ployees of a particular firm or of the workers in a given categoryhad received an increase in wages or fringe benefits before thefreeze did not entitle others in the same category to the increase.41

For most wage-earners, wages during the freeze were determinedby the individual's wages during the base period.

From another point of view, the freeze on wages applied to jobcategories rather than to individuals. A person could be promotedto a higher level job and thus obtain increased pay. Apprentices,learners, and persons hired on probation could be promoted innormal fashion, according to programs established before thefreeze, and thus receive pay increases.42

Over a hundred rulings on wages and fringe benefits appearedin the Circulars. Some idea of the complexity of policy makingcan be seen from a partial listing of topics covered: workers onstrike, professional athletes, severance pay, returning veterans,incentive pay plans, piece rates in the California raisin harvest,deferred cost-of-living increases, Idaho gold miners, State minimumwage laws, wage cases pending before regulatory agencies, legalholidays, ''lag dates" in steel workers' contracts, profit sharing,construction workers under the Davis-Bacon Act, workers trans-ferred to new locations, clergymen's salaries, and Americans work-ing for U.S. firms abroad.

A critical question arose as to how the freeze affected wagecontracts negotiated during the 90 days and covering retroactivelywork performed before August 15. There were several instanceswhere contracts had expired before the freeze but employees hadcontinued working during wage negotiations. CLC ruled that,once a new contract was signed, a wage increase could be paid

39 Economic Stabilization Regulation 1, August 20, 1971, Sec. 2 (b).40 ESC 101, Sec. 407 (3).41 This situation arose, of course, only when there was no wage contract; when

there was a contract and a wage increase had taken effect before the freeze, allworkers received the increase.

42 ESC 101, Sec. 503; ESC 102, Sec. 503.

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retroactively for the time before the freeze, but not for the periodof the freeze. Furthermore, the parties had to demonstrate thatthey did not change their bargaining position in order to com-pensate for or absorb the impact of the freeze.43

The question of whether a contract was actually in effect byAugust 15 or not came up several times. A contract which hadbeen signed by management and union officials before August 15but was ratified by workers after the freeze began was allowed tostand. In another case, a contract was offered by management andaccepted and signed by the union before the freeze, but was notsigned by management until August 16; this was also allowed tostand.44 In these cases, since the effective date of the wage agree-ment and the accrual of pay both antedated the freeze, the wageincrease applied both to the prefreeze period and to the freezeperiod itself. Although labor leaders contended that wages hadbeen absolutely frozen, there were many borderline situations likethese in which CLC allowed pay increases.

Fringe benefits could not be increased during the freeze, andthis led to some problems. Firms normally grant a paid vacationafter a specified period of service, such as 1 year, and increase thevacation time with added years of service. When the specifiedperiod of service was completed during the freeze, employees werenot allowed to take the vacations because they were seen as in-creases in fringe benefits. In the final days of the freeze, however,the rule was reversed and the vacations were allowed on thegrounds that they had been accrued during the year or years ofwork and were not therefore a new or added benefit.45

A similar decision concerned stock options, which some firmsgrant to employees at periodic intervals. The initial ruling was thatno new stock options could be issued and that existing stockoptions could not be exercised during the freeze period unless theright to exercise them expired before November 14.46 CLC laterruled that stock options could be issued "for the same number ofshares as in the base period (adjusted, if necessary, for stock splitsand stock dividends) and under the same terms and conditions."47

43 ESC 101, Sec. 502 (3); ESC 102, Sec. 505 (6) .44 ESC 101, Sec. 502 (30,35).45 ESC 102, Sees. 502 (2), 504 (8); reversal in ESC 25, November 10, 1971, Sec.

502 (1).46 ESC 101, Sec. 504 (3) ; ESC 102, Sec. 502 (14) .47 ESC 25, November 10, 1971, Sec. 504 (1) . See CLC press release, November 10,

1971.

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Teachers' Salaries

Teachers' salaries were one of the most hotly debated issues ofthe freeze. Since the freeze was imposed just before the opening ofa new school year, the time when a majority of the Nation's twomillion teachers would normally receive salary increases, it hada greater impact on members oT this profession than on any com-parable group. This situation was aggravated by two factors: thefeeling of many teachers that their profession is consistently under-paid and should have been exempted from the freeze to beginwith, and the ambiguities found in the freeze regulations thatattempted to deal with unique features of teachers' contracts. Theresult was a serious problem of opposition to the freeze by a largeand influential group, with widespread instances of noncompliance.

Those who set freeze policies had no intention of putting teach-ers' salaries in a favored position. The special rules made forteachers (which applied also to school administrators, cafeteriaworkers, etc.) were intended only to prevent teachers from suffer-ing inequities because of unique contractual or salary conditions.48

The date on which a teacher or administrator begins work inrelation to a new school year is often hard to determine, since hemay be working at home, in a library, or at a professional meeting.Depending on local rules and the teacher's choices, he may havehis pay spread over 9 months, 12 months, or some in-betweenperiod, not necessarily coinciding with the period of actual work.If a pay increase based on longevity or intended for all teachersin a system went into effect with the fall term, it was often nearlyimpossible to answer the critical question of whether a pay increasewas or was not "in effect" for a particular teacher before August 15.

OEP regulations allowed all teachers who were eligible to bepaid over a 12-month period, but had opted for a 10-month plan,to receive a pay increase which was in effect in their school districtbefore August 15.49 Otherwise, some teachers would have sufferedan inequity merely because of the pay plan they had chosen.

Another complicating factor was the form of teachers' contracts.A union's contract with an employer affects all workers impartially;during the freeze, a worker under a union contract received a payincrease even if he was on vacation or was laid off during the baseperiod. A nonunion worker, on the other hand, generally has awholly individual contract with his employer, with terms of em-

48 Interview with G. A. Lincoln, February 3, 1972.49 ESC 2, August 26, 1971, Sec. 501 (h) .

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ployment and compensation tailored to him. The teacher's situa-tion lies somewhere between these points: there is usually a fixedpay scale and uniform contract for all teachers, but each teachersigns the contract individually. This made it difficult at times totell whether a teacher was governed by an individual or a groupcontract, and, therefore, on what date a pay increase took effect forhim.

The salary question was easily settled for teachers who wereclearly on individual contracts. Aside from the 10 month/12 monthrule noted above, teachers on individual contracts were governedby a simple rule: those who were eligible to accrue pay at the in-creased rates before August 15 obtained the increase; others didnot.50

Where there was a system-wide contract, the interpretation wasmore difficult. The salient regulation was:

In the case of school systems that have negotiated a system-wide contractwhich is applicable to all teachers in the system and which makes all teacherseligible to receive payments prior to August 15, all teachers may receive theseincreased payments if any one teacher either performed work or was accruingpay prior to August 15.51

This rule clearly permitted raises for many teachers, perhaps asmany as 80 percent of the 2.1 million in the country, as the Na-tional Education Association estimated. But it also opened the doorto misinterpretations. Some school systems seized on this "goldensheep rule," as it came to be called, and began granting pay in-creases to all their teachers providing at least one had workedbefore August 15. This was often done regardless of their individ-ual eligibility and even in the absence of a system-wide contract.The golden sheep rule applied only to those teachers who weremade eligible, under a system-wide contract, to accrue pay beforeAugust 15.

In the face of the widespread noncompliance that resulted,Arnold Weber and other CLC spokesmen began taking a "hardline" on teachers' pay by putting the narrowest possible interpreta-tion on the rules,52 and this led to widespread charges that CLChad reversed its earlier ruling. The confusion was largely resolvedin mid-September when OEP issued new guidance clearly separat-ing system-wide contracts from individual contracts. It stated that

80 ESC 5, August 31, 1971, Annex 2; ESC 13, September 13, 1971, Annex 1.51 ESC 5, August 31, 1971, Annex 2. Originally published in a CLC press release

on August 26, 1971.52 See Statement of Arnold R. Weber to the Press, September 3, 1971, and press

accounts of it on September 4, including Washington Post, p. 4, New York DailyNews, p. 2.

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all teachers under system-wide contracts who were eligible to accruepay before August 15 could receive the fall pay increases, andadded:

If, in fact, such a contract makes all teachers eligible to accrue pay prior toAugust 15, it is irrelevant whether "any one teacher" performed work or accruedpay prior to August 15. If the employment arrangement requires that a teacherbegin work to be eligible for pay, then the date of beginning work is the datethe teacher is eligible to accrue pay.53

This supplement, carefully prepared by lawyers in the OEP Gen-eral Counsel's office, resolved most of the confusion on teachers'salaries, according to reports from Regional Directors.54

Rents

The rent freeze applied to all residential and commercial proper-ties, including hotel rooms and trailer courts, and to the rental offurnishings and provision of services connected with rental proper-ties. Tenants could not, for instance, be required to pay utilitybills that had formerly been paid by the landlord, unless rentswere lowered proportionately. A ceiling rent was determined foreach house, apartment unit, hotel room, or similar unit by actualrentals during the base period—the most recent 30-day periodduring which the property was occupied. Units not previouslyrented were priced at the same level as similar units in the samelocality. The rental rate was set by transactions in the base period,and "transaction" meant performance of the service, that is, oc-cupancy of the property by the renter. It did not matter when arent increase was announced, a lease was signed, a deposit wasmade, or even when the rent was paid.55

The transaction rule was applied to rents in a limited way. Ifa hotel room was rented many times during the base period, theceiling rent wras determined by the level attained by the highest10 percent of the rentals. The transaction rule could not be usedto equalize rents on several units in the same building or ownedby the same firm. Rather, each dwelling or commercial unit hadits own ceiling.

The amount of guidance issued on rents was much smaller thanthat on prices or wages. Reports from OEP Regional Offices indi-

53 ESC 13, September 16, 1971, Annex 1.54 Memo, Leonard Reese to Lincoln, September 18, 1971, Subj: Regional Reports

on Teachers' Salaries. The compliance problems resulting from this policy situationare covered on pp. 128—131.

55 Economic Stabilization Regulation 1, August 20, 1971, Sees. 2 (c) and 3 (b);ESC 101, Sees. 601, 602.

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cated that problems of interpretation in this area were relativelyminor. There were a few rulings, however, that are of generalinterest. Subject to a number of qualifications, a property thatunderwent capital improvements could be treated as a new rentalunit and thus draw higher rent.56 In government aided housingprograms that charge a fixed percentage of tenants' income as rent,rents could increase as a tenant's income increased, but the per-centage charged could not be increased.57

Formula rentals and the pass-through of certain taxes presentedsome difficult policy questions. Most formula rental agreements arefound in leases for commercial property, though they may alsoapply to rental of residences and commercial equipment, such asaircraft. For example, a commercial tenant might agree to payfor all taxes, insurance, and repairs plus a fixed monthly rent; insuch a case the owner is in effect investing his money at a fixedrate of return and does not assume the normal duties of a landlord.In a residential lease, a tenant might agree to normal rent pluspayment of the property taxes.

It was ruled early in the freeze that increases in occupancy taxeson rental dwelling units could not be passed on to tenants.58 Theposition on the pass-through of property taxes underwent severalchanges, partly because it was intertwined with formula rentals.The final ruling, published on October 20, was that increases inproperty taxes could be passed on if the effective date of theincrease was before the freeze.59

The use of formula rentals was at first approved only for newcommercial tenants—those whose leases began during the freezeand who operated businesses different from those of previoustenants. In early October the ruling was changed to allow allformula rental agreements to remain in effect during the freeze,except that certain specific types of rent increases were forbidden.60

LOOKING FORWARD

As the freeze neared its end, OEP's attention shifted to smooth-ing the way for the post-freeze program. An important contribu-tion in the policy area was to provide to the Pay Board and Price

56 ESC 101, Sec. 601 (21) ; see also p. 127.57 ESC 101, Sec. 601 (5,10).58 ESC 3, August 28, 1971, Sec. 602 (d).69 ESC 21, October 20, 1971, Sec. 602; see also Sec. 602 in ESC's 7, 17, and 19.60 See Sec. 602 in ESC 17, September 30; ESC 19, October 6; and ESC 21, October

20, 1971.

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Commission a number of people familiar with policy writing andinterpretation. OEP's Policy and Guidance Liaison Office becamethe nucleus of the Price Commission's policy staff, and other OEPand detailed personnel were attached to the Board or the Com-mission either for the transition period or as permanent staffmembers.

OEP also contributed to the formulation of Phase II policy byhighlighting the problems encountered during the freeze and sug-gesting some solutions. On October 22 Lincoln and eight membersof OEP's freeze staff briefed the members of the Pay Board andthe Price Commission on major policy issues that would need tobe resolved by those bodies. OEP's compilations of major policyproblems were submitted to the Pay Board and the Price Com-mission on October 29.

The paper for the Price Commission described 38 issues andsingled out 10 of these as requiring earliest attention.61 Most ofthe priority items concerned the alleviation of hardship situations,such as allowing steel processors, lumber companies, and grocerywholesalers to pass on increases in their costs, lest a prolongedprofit squeeze should result in permanent damage to many busi-nesses. Similarly, it was suggested that sellers of imported goods beallowed to pass on price increases, even when the imported itemwas transformed or incorporated into another product. The hard-ship imposed on the die casting, forging, and metal stampingindustries, which operate under long term contracts, was alsocited, and it was pointed out that relief could be obtained byredefining "transaction" or by allowing formula pricing, as hadbeen done for the insurance industry.

Some items of lower priority were: exempting auction sales andsales of secondhand items, because the fair market price is elusiveand policing is therefore difficult; allowing industries to pass onthe costs of using cleaner fuels when these were required by anti-pollution laws; and exempting all regulated industries (electric,gas, telephone, and transportation) , leaving price control in thisarea to the existing regulatory agencies.

In the area of rents, changes in the application of the seasonalityrule and of formula rentals were suggested, as was special treat-ment of apartment rents in New York City. Authorities in NewYork had begun on July 1, 1971, to phase out the State rent controlprogram dating from World War II because of the dire shortage

61 Problem Areas Related to Sales of Goods and Services and Rentals and Salesof Property which Deserve Early Attention by the Price Commission, October 29,1971.

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of decent housing in the city. The controls had made renovationof older buildings uneconomical, with the result that thousandsof buildings had been abandoned. New York authorities had ac-cepted the prospect of rent increases of 80-100 percent after renova-tions, but the freeze re-imposed rent control and stopped mostrenovation work.

The companion paper for the Pay Board listed 17 policy issues,only three of which were designated as high priority items.62 Thesewere: allowing equalization of the wages being paid for the sametype of work within one plant or company; allowing cost-of-livingincreases covered by wage contracts to take effect, since they areseen as "catch up" rather than "move ahead" raises; and eliminat-ing salary differences among teachers in the same system whichresulted from some getting raises and others being denied themunder the freeze.

Greater leniency was suggested in allowing employees to obtainfringe benefits, such as health insurance, pension plans, added daysoff, and the right to join thrift incentive plans. It was also pointedout that merit and longevity increases are important for moraleand could be allowed without being inflationary.

In his briefing of the Pay Board and Price Commission onOctober 22, Lincoln summed up the main lessons learned fromthe freeze. He emphasized the vastness and complexity of theproblems involved in trying to control all aspects of the economy,even for 90 days. He stressed the need for consistency of policyand the need to respond quickly to questions and problems asthey arise, to keep from being snowed under by them. He alsomentioned the importance of teamwork among the many Federal,State, and local agencies and private entities involved in this typeof fast moving program. Lincoln recognized that it might be ap-propriate in Phase II to exempt many areas that had been tightlycontrolled during the freeze, but added: "we have to keep inmind the purpose of this great effort, which is to get the rate ofinflation down to 2 or 3 percent by the end of next year. Thatpurpose seems to me to be overriding." 63

OEP's Regional Directors evaluated the guidance they receivedand were required to interpret and apply, with adjectives rangingfrom "generally adequate" to "superb" and "outstanding." Theproblems they encountered with the policy statements—undefinedterms, vague formulations, inconsistencies, reversals, and delays in

^Problem Areas Related to Wages and Salaries which Deserve Early Attentionby the Pay Board, October 29, 1971.

63 Lincoln, Remarks to the Pay Board and Price Commission, October 22, 1971.

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getting answers—were usually attributed to the fact that the freezewas launched with a minimum of advance planning and policyhad to be written in piecemeal fashion, in response to concreteproblems. Regional Directors generally found the guidance onrents the clearest and that on wages and salaries the most difficultto interpret. They were acutely aware of the problems that OEP'sstringent application of the freeze order had caused for businessesand recommended that a number of exceptions and adjustmentsbe made at the outset of Phase II.64

1 Regional Directors' After-Action Reports to OEP Historian.

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V

Exceptions and Exemptions

AUTHORITY

Whenever wage and price controls have been imposed on theAmerican economy, a means has been provided for exemptingindividuals or specified groups in order to alleviate hardships ormeet special emergency requirements. Conforming to this pattern,the Economic Stabilization Act of 1970 gave the President theauthority to "provide for making of such adjustments as may benecessary to prevent gross inequities." 1

As this authority was delegated from the President to the Costof Living Council and redelegated to the Director of OEP, theconcept of "adjustments" was further defined and a policy spelledout. The President told CLC it could "make exceptions or grantexemptions," 2 and CLC Chairman Connally added that "signifi-cant policy decisions shall be made only after consultation withthe Council." 3 OEP's own regulation on the subject gave the firstcomprehensive statement of the policy:

The Director of the OEP at his discretion may make exceptions to or grantexemptions from the prohibitions listed in Section 2 of this regulation for thepurpose of preventing or correcting gross inequities*

The terminology used in this area was not further defined forthe general public. During the freeze, the terms "exceptions andexemptions" usually appeared in tandem, with no apparent dis-tinction being made between them. A clarification approved forstaff use defined an exception as a policy decision "which appliesto an entire class of individuals or organizations" and an exemp-tion as the "waiver of a ruling for the benefit of a single individualor organization." 5 The distinction is adhered to in this history,

1 Economic Stabilization Act of 1970, Sec. 202.2 Executive Order 11615, August 15, 1971, Sec. 4.a.ii.3 CLC Order No. 1, August 17, 1971.4 OEP Economic Stabilization Regulation 1, August 20, 1971, Sec. 4.a. The "pro-

hibitions" covered the whole range of prices, wages, salaries and rents.6 Executive Policy Committee (EPC) Notes, September 24, 1971.

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EXEMPTIONS

although it was not widely disseminated or applied during thefreeze. The discussion in this chapter relates primarily to thecategory of exemptions.

An Office of Exceptions and Exemptions was established in OEPheadquarters on August 18 under the direction of Mr. ChristopherA. Norred, Jr. A Foreign Service Officer, Norred had been ondetail to OEP from the Department of State for two and a halfyears. He was just preparing to return to the State Departmentwhen Lincoln asked him to head this office for the duration of thefreeze. Mr. Spence W. Perry was appointed executive officer andin this capacity represented the Exceptions and Exemptions officein the daily Coordination Meetings, in which the interrelationshipsof all freeze activities were worked out.6

POLICY

In order to see how the policy on exceptions and exemptionsfitted into the overall strategy of the freeze, it is useful to comparethe situation to the inception of controls in World War II andthe Korean War. In both these previous cases, prices and wageswere initially frozen, but regulations were issued within a matterof weeks to provide for adjustments, some of which were requiredby the basic legislation. This was possible because a skeleton staffhad been assembled during a period of voluntary restraints whichhad preceded the freeze. The transition from the period of "freeze'*to a later period of more flexible regulation was thus made gradu-ally. During the initial freeze period, exceptions of an emergencynature could be made, but most adjustments were postponed untilrelevant regulations had been issued.

In the 1971 control program, on the other hand, there was no"warm up" period of voluntary controls before the freeze was im-posed, so the freeze was maintained for a longer period in orderto provide time to plan strategy, form structures, and assemble theexpert staff required to administer the long-range control program.Another unique feature of the 1971 program was that the secondphase was begun on a fixed date instead of by a gradual transition.The small, quickly assembled staff that administered the freezecould make exceptions and exemptions, but as in previous controlprograms most relief was postponed until the second phase.

It was inevitable that a freeze of such duration would impose

8 On executive officers and Coordination Meetings, see pp. 55-57.

97474-893 O - 72 - 8


EXEMPTIONS

hardships on some individuals and organizations. The freeze caughtsome employers who had just granted a wage increase, manu-facturers who had just experienced an increase in the cost ofmaterials, and retailers whose wholesale prices had just risen. Onthe other side of the wage-price spiral, many wage earners whoseearnings had been eaten away by cost-of-living increases wereprevented by the freeze from obtaining catch-up raises. Some em-ployee groups were caught after they had canceled one groupinsurance plan but before a new one had taken effect. Some land-lords had just made improvements to their property with theintention of raising rents, and numerous other large and smallbusinesses were thwarted in the normal execution of their plans.

Nevertheless, the strategy of the freeze was to ask all who weredisadvantaged by it to bear with the hardship in the traditionalAmerican spirit of belt tightening during a war or other crisis. Athis press conference on August 16, Secretary Connally said on thesubject of exemptions: ". . . we don't anticipate making any exceptin most extreme and dire cases of hardship and inequity." 7 It wasthus clear from the first that the policy on exemptions was to bestringent. Lincoln adhered to this policy and impressed it onothers. In denying a price increase to New York school bus con-tractors, for instance, he told them:

It is hoped that the bus contractors involved will accept their share of theburden in stopping inflation and will not use the needs of students, includingthose handicapped, to attempt to receive preferential treatment during a periodwhen all are being asked to make sacrifices.8

The purpose of the exemption authority, as noted above, was''to prevent or correct gross inequities/' Regional Directors askedthat "gross inequity" be defined so they would have a more precisecriterion by which to review requests, and Norred suggested thatthe criterion could be "the degree of individual hardship." 9 Noformal definition was adopted, however, so there was no predefinedsituation that could be counted on to trigger an exemption. Rather,the Director applied the criterion of "gross inequity" to each caseas it arose.

In making decisions on individual exemption requests, Lincolnwas careful to maintain the consistency of treatment on whichpublic support for the freeze was based. Even the Girl Scouts ofAmerica were required to rescind a dues increase. In the absence

7 Department of the Treasury News, August 16, 1971, p. 19.8Msg Charlie 129, September 10, 1971, quoted in New York Times, September 11,

1971, p. 1.9EPC Notes, September 1, 1971.

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of an elaborate bureaucracy to investigate every request, the bestway to assure equal treatment to all was to deny requests exceptin a very few, unusual cases. The strategy employed therefore hadmuch in common with that used for compliance, which was todemand compliance of all, whether violations were major or minor.In all, only five requests for exemptions were granted: three allow-ing increases in fringe benefits, and two allowing increases in localwater rates.

ORGANIZATION

The Office of Exceptions and Exemptions had a staff of about25 people, who reviewed all exemption requests and related cor-respondence received in the National Office. The professional staffmembers were specialists on prices, wages, or rents on detail fromthe Departments of Commerce, Labor, Agriculture, Housing andUrban Development, and other Federal agencies.

Exemption requests had to be submitted in writing to an OEPRegional Office or the National Office (not to IRS or ASCS offices).An applicant was required to identify his organization, state howthe freeze was believed to be grossly inequitable, and specify therelief sought. This had to be done in considerable detail, oftenwith supporting affidavits.10 Regional Directors were told to dis-courage exemption requests because of the short duration of thefreeze. Applicants were informed, however, of their legal rightto pursue this administrative remedy and were assisted in filingthe exemption requests if they chose to do so. The normal pro-cedure was to file a request at a Regional Office; but those thatwere sent to the OEP National Office or to CLC were handled inWashington in order to provide the quickest possible response.

Each Regional Office had a small staff division for processingexemption requests. The initial analysis of cases was done by thespecialists on prices, wages, etc., who had been drawn from variousFederal agencies to make up the Regional Office freeze staff. Somecases involving small businesses were also evaluated by the localoffice of the Small Business Administration.

In the first two weeks of the freeze all requests were forwardedto OEP headquarters for a decision. On September 3, RegionalDirectors received authority to deny, but not grant, exemptions in

10 "Provisional Guidance on Exceptions and Exemptions," OEP Message 18, August18, 1971; see OEP Press Release 395, August 20, 1971.

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cases where a clear precedent had been established; after that theyforwarded only novel or complex cases to Washington.11 The dele-gation of denial authority for use in instances where there wereclear precedents provided faster settlement of cases and reducedthe load of decision making in Washington. All denials by Re-gional Directors were reviewed at the National Office to assureuniformity of policy application.12

Exemption requests received at OEP headquarters were analyzedby Norred's staff, with assistance from the General Counsel onlegal questions. IRS was asked to investigate 70 exemption cases,and all but 14 of the investigations were completed before Novem-ber 13. Because of the time required for these investigations,however, most of the complex exemption cases did not come upfor a decision until the latter half of the freeze.

The results of these investigations and studies were presented,along with staff recommendations, to the OEP Director. The Di-rector sought the advice of the Executive Policy Committee on themore difficult cases and took up with CLC those involving signifi-cant policy decisions. Early in the freeze period he selected severalparticularly persuasive applications and discussed them with theCommittee and the Council in order to determine more preciselywhat the policy on exemptions should be. Throughout the freezehe consulted with EPC and CLC on unusual exemption requestsbefore exercising his authority to grant or deny them.

Requests for reconsideration of a decision, sometimes accom-panied by additional information, were submitted through thesame channels as the original requests. As stated earlier, OEPheadquarters reviewed all denials, but there was no provision foradministrative appeal of decisions to higher levels of authority.Those who felt they had been unjustly dealt with had availablethe recourse of taking CLC or OEP to court to force the reversal ofa decision.

OEP publicly announced the first 14 denials made by the Na-tional Office in generic terms, such as, "A bicycle manufacturerwas denied a price exemption.'' At the suggestion of the ExecutivePolicy Committee, however, the names of persons and companieswere added to the denial announcements in the belief that thiswould increase the public impact. This policy was followed fromSeptember 2 to October 9.

11 OEP Messages Bravo 125, August 31, 1971, and Alfa 43, September 3, 1971.12 As will be indicated below, two exemptions that had been denied by Regional

Directors were later granted by the OEP Director; both authorized increases inmunicipal water rates.

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In early October complaints began to come to OEP that it wasunfair to announce the names of those denied exemptions. Thosewho had violated the freeze, knowingly or not, were allowed todiscontinue the illegal practice without any public announcement.Those who were denied exemptions felt they had even more rightto anonymity, since the pursuit of a legal remedy should not bepenalized by unfavorable publicity. On October 9 EPC agreed thatexemption denials should thenceforth be given to the press onlyas statistics, without names or case descriptions.13

THE STATISTICAL PICTURE

Despite the crisis atmosphere that characterized the freeze period,OEP sought to keep accurate records and to compile statistical re-ports as an aid to better management and evaluation. While thefigures on exemption requests may not be absolutely accurate, theydo provide a picture of the task that confronted the staff and givesome idea of the impact of the freeze on the economy.

The number of items of correspondence on exceptions and ex-emptions received during the freeze was 5558. Of these, 4532 werereceived at the Regional Offices and 1026 were received directlyat the National Office. In addition to those received directly, theNational Office received 1231 pieces of correspondence from Re-gional Offices, so the total received in the National Office was2257. It should be noted that these figures give the number ofitems of correspondence, not of actual exemption requests.

Table 4 gives a breakdown of the ways in which this cor-respondence was handled. As indicated in the table, many whoapplied for an exemption did not actually need one, because thedesired action was not in violation of freeze regulations. Evenwhen a request was denied, the petitioner was sometimes advisedto explore means of meeting his needs within existing regulations,and this was sometimes possible. Some applications were rejectedbecause they came from trade associations or other organizationsnot eligible to file for exemptions. (Petitions were accepted onlyfrom individuals or organizations actually affected by the freeze.)

13 EPC Notes, October 9, 1971.

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TABLE 4.—Correspondence on Exception/Exemption Requests

Regional NationalOffices Office Totals

No exemption needed , 309 162 471Not eligible to file 89 89Request withdrawn 209 23 232More information requested 242 112 354Requests denied 2365 865 3230Exemptions granted 5 5Congressional referrals answered 157 157Cases reconsidered and denied 234 234Under investigation by IRS on Nov. 13 14 14

Total actions taken 3214 1572 4786Forwarded to National Office 1231Additional correspondence received 87 685 772

Total correspondence received 4532 2257 5558

Note: The first figure in the second column (162) includes all National Officecases in which no exemption was needed or the applicant was not eligible to file foran exemption. "Additional correspondence received" includes duplicate correspond-ence on some cases plus correspondence received in the last few days of the freezeperiod and forwarded to IRS, the Pay Board, or the Price Commission. The figureat the bottom of the right hand column (5558) was obtained by adding verticallyin the right hand column, not by adding horizontally.

Some applicants withdrew their requests after discussing the matterwith an IRS or OEP representative and finding that they hadweak grounds for an exemption. Some gave the impression thatthey wanted only to be "talked into" abiding by the freeze, andwhen this was done they withdrew their requests. Some submittedapplications that were incomplete or obscure and were asked tosupply more information.

A total of 3230 requests for exemptions were denied, and 73percent of the denials were made by the Regional Directors. Thesewere cases where a clear policy had been established at the nationallevel and generally involved relatively slight hardships. Some wereessentially complaints about basic policies—the situations where awage or price increase had been announced before the freeze butcould not be put into effect, or where a rate increase had beenauthorized by a regulatory agency but the effective date fell withinthe freeze period. Some requests appeared to have been made forthe record, with no real expectation of approval. Some employers,for instance, requested authorization for wage increases simply tosatisfy the employees or the union that all avenues had been ex-plored. As noted earlier, Regional Directors referred the moreintricate cases and those involving new policy decisions to the

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National Office. The 1231 cases that were forwarded constituted 27percent of the correspondence received in the Regional Offices.

Many of the 157 congressional referrals in Table 4 were equiva-lent to denials. A constituent would write his Congressman forhelp in obtaining an exemption, and the Congressman wouldrefer the letter to OEP. OEP usually asked the Congressman toinform his constituent that he could file a formal request if hewished, but that it would probably result in a denial. The 14 casesstill under investigation by IRS on November 13, plus 19 othersreceived shortly before that date, were transferred to IRS forprocessing as part of Phase II. In addition (not shown in Table4), 45 requests pertaining to Phase II were forwarded to the PayBoard and 112 to the Price Commission.

Correspondence on exceptions and exemptions received in Re-gional Offices fell into the following categories: 45 percent per-tained to prices, 36 percent to wages, and 19 percent to rents.Percentages based on correspondence received in the NationalOffice showed that 48 percent pertained to prices, 40 percent towages, and 12 percent to rents. There was, therefore, a significantdecrease in the proportion of rent cases considered at the nationallevel as compared to the regional level. Many rent cases were un-complicated and thus were more likely to be resolved at the re-gional level. Another reason for the slight differences in percentagefigures is that large industries and unions were more likely toapply directly to the National Office.

Some indication of the extent of the hardship experienced canbe obtained by comparing the number of exemption requests tothe number of businesses or persons that were potential applicants.There were 11.6 million business establishments in the country,for instance, but fewer than 2,500 applied for exemptions. Therewere 23.6 million renter occupied housing units in the country,but fewer than 1,000 requests for rent exemptions were received.There was a civilian labor force of 78 million, but there were onlyabout 2,000 requests for wage exemptions.14

Table 5 shows the results of the National Office's review ofdenials made by Regional Directors. OEP terminated this reviewprocess on November 12 and forwarded all cases that had not beenreviewed to IRS, which channeled requests to the Pay Board orthe Price Commission.

"Some exemption requests, of course, covered several rental units or manyemployees. Source of figures: U.S. Bureau of the Census: Statistical Abstract of theU.S. for 1971 (Washington: Government Printing Office, 1971), pp. 210, 459, and 673.

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TABLE 5.—National Office Review of Regional Denials of Exemption Requests

Denials affirmed by OEP Director 1077Exemptions granted 2*No action necessary 40Additional information or guidance requested 96Cases not reviewed due to lack of time 1150

(forwarded to IRS)

Total denials made by Regional Directors 2365

•These two exemptions are not in addition to the five given in Table 4 but arepart of that total. The two given here, both pertaining to municipal water rates,were denied by Regional Directors but later granted at the national level.

SIGNIFICANT CASES

Wages and Fringe Benefits

There were a few exceptions—policy decisions affecting classesof individuals—that permitted increases in wages or fringe benefits.One permitted wage increases for military personnel who were incombat zones, missing in action, prisoners of war, or hospitalized aswar casualties. Construction workers covered by the Davis-BaconAct could receive increases in certain circumstances. Social Securitycould be added as a fringe benefit. Some forms of personal incomewere defined as "not wages or salaries" and therefore not coveredby the freeze; these included child support, alimony, welfare pay-ments, and workmen's compensation. Those who retired before orduring the freeze were allowed to receive increases in pensionbenefits that had been planned before the freeze. Bona fide promo-tions were permitted; and apprentices, learners, and persons hiredon probation who were advanced at normal times to increasedduties or levels of responsibility were allowed to receive the higherpay commensurate with their new positions.15

Forty percent of the requests for exemptions received at theNational Office were for increases in wages or in fringe benefits.All requests for wage increases were denied. Most increases in theemployer contribution to fringe benefits were also denied, butthree exemptions were granted permitting implementation ofgroup health-insurance plans (all granted on September 29). Twoof the plans also included optional life insurance. The exemptions

15 Guidance on wages and salaries, including all excepted categories, is in Sections502, 503, and 504 of OEP's Economic Stabilization Circulars (ESC) ; see also ESC101, Sec. 410.

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EXEMPTIONS

allowed employees of the State of Texas, teachers in Missouri, andteachers in Columbia County, Florida, to be covered by new group-insurance policies that took effect during the freeze.16 Employeeshad been enrolled in these new plans prior to the freeze, but theeffective date of the policies fell within the freeze period. In Texasand Missouri, old group policies had been terminated in anticipa-tion of the new policies, leaving many employees with no healthinsurance or else no life insurance. Some employees were unableto obtain insurance except as part of a group.

The only possible alternative to exemptions was to have theemployees pay the employer contribution themselves. This wouldhave been difficult administratively, since the plans required 100percent participation. The relative poverty of many employees wasalso taken into consideration. In one department of the TexasState government, 41 percent of the employees were earning lessthan $4,000 a year, which meant that the monthly cost of about$12.50 per person could have been a hardship. It was thereforejudged that refusing to allow the group plans to go into effectwould be a gross inequity and that an exemption should begranted.17

At the same time that these exemptions were granted, the volun-teer firemen in the State of Nebraska were told they could inaugu-rate new group life insurance policies. A recent Nebraska law hadrequired all municipalities and rural fire boards to buy $2,000worth of life insurance for each volunteer fireman, but OEP hadruled against this on September 1 on the grounds that it was anincrease in fringe benefits. When the matter came up again, how-ever, as an exemption request, it was decided that group life insur-ance for volunteer firemen should be considered a gratuity ratherthan a wage or fringe benefit, and in that case it was not coveredby the freeze.18

One group insurance case illustrated the way government regula-tions can complicate people's lives in unexpected ways. The Wood-men Accident and Life Company of Lincoln, Nebraska, hadcontracted to provide group health and life insurance for the 12employees of a manufacturing firm, beginning September 1. Thisfirm canceled a Blue Cross/Blue Shield group health policy (which

16 The exemption for Texas was granted to the Texas Public Employees Associa-tion. Two other exemptions were sought on behalf of Texas State employees, butboth were denied. One was sought by the State for all its employees, the other bythe Texas Public Employees Association for 6,600 low income employees. See OEPPress Release 455, September 29, 1971.

"EPC Notes, September 16, 25, 27, and 29, 1971.38EPC Notes, September 21, 22, 23, 1971.

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EXEMPTIONS

had no life insurance provision) in anticipation of the new policy.The intervention of the freeze prevented the new policy fromtaking effect, and the situation was gravely complicated on Septem-ber 12 by the accidental death of one employee. The question ofwhether he had or had not been covered by the life insurancepolicy was of critical importance to his widow and five children,who were eligible for $10,000 in death benefits from the newpolicy.19

Although a request for an exemption was denied, it was laterdiscovered that there was no need for an exemption because thepremiums for the new policy were lower than for the old one,which meant there was technically no increase in fringe benefits.20

By the time this was discovered, however, the firm had droppedthe Woodmen's policy and gone back to the earlier health insur-ance policy. The matter was finally resolved when the Pay Boardallowed all fringe benefits of this type to be applied retroactively,21

which made it possible for the family of the deceased employee toreceive the death benefits.

The Texas Public Employees Association and the Governor ofSouth Carolina both requested exemptions for wage increases forlow-paid State employees. The Texas group used as a criterion theFederally established poverty level, and South Carolina used $6,000a year. These increases were disallowed on the grounds that failureto obtain them did not constitute a gross inequity. The questionof how persons of low income were affected by the freeze wasclarified on September 22 by the issuance of the following "Supple-mental Information":

No formal exemptions are provided solely because of low income. However,the following provisions do afford substantial relief to persons of low income:(a) Wages are not frozen below minimum wage standards of general application;(b) Wages are not frozen where increases are necessary to eliminate unlawful

discriminatory wage practices; (c) There is no freeze on welfare payments; and(d) There is no freeze on increases in coverage or benefits under Social Security.22

The reference to minimum wages meant that employees actuallycovered by minimum-wage laws could obtain wage increases up to

19EPC Notes, November 12 and 24, 1971.20 ESC 102, Sec. 504 (10).21 Federal Register, December 7, 1971, p. 23219.22 SPG 4.0852. The extension of the Economic Stabilization Act, signed on Decem-

ber 23, 1971, exempted from regulation the wages of "any individual whose earningsare substandard or who is amongst the working poor." No definition of "the workingpoor" was provided in the law, and CLC interpreted the exemption as applying tothose earning less than $1.90 an hour. After a Federal District Court ruled on July14, 1972 that this was less than Congress intended, CLC raised the cutoff level to$2.75 an hour. This decision, along with earlier exemptions, left free from wagecontrols 56 percent of the Nation's 58 million nongovernment, nonfarm workers.(See New York Times, July 25, 1972, p. 1).

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EXEMPTIONS

the minimum wage. Discriminatory wage practices would be, forinstance, those based on age, sex, or race. If a State increased itslegal minimum wage during the freeze, wages could be raised tocomply with the law. However, an increase in minimum wages forspecific occupational groups, such as teachers, could not be put intoeffect during the freeze.23

Government Service Charges

The fourth and fifth exemptions granted during the freezeallowed increases in local water rates. They are discussed here inthe context of decisions on other government service charges.

At the time the freeze was imposed many American communitieswere faced with the need to expand or improve their water andsewer facilities, often because of new Federal or State requirementsfor pollution abatement. In various places, water supplies failed tomeet recommended levels of purity, water pressure was insufficientto control fires, or raw sewage was being dumped into lakes andrivers, causing water problems for other cities. New constructionor other major new costs in water systems are usually covered bybond sales; and State laws and the bond brokers require that, be-fore bonds are sold, the water or sewer rates be set at a levelsufficient to repay the bonds. Rates are usually set by publicauthority just high enough to cover such costs.

The question of increases in government service charges waspresented to OEP early in the freeze. The Los Angeles City Coun-cil had granted a 12 percent electricity rate increase on July 19 tothe Los Angeles Water and Power Department, a municipallyowned utility. The utility had sold $39 million in bonds on August11 and planned to sell a like amount on October 21, all to be paidfor by the rate increase, which was to take effect on August 21.However, the imposition of the freeze blocked the rate increase andeliminated $6.3 million in increased revenue that would have comein during the 90-day period. The utility applied for an exemption,stating that 3,000 to 4,000 employees would have to be laid off ifthe rate increase were not approved.24 OEP denied the request onAugust 26, after consulting with CLC. Within the next few weeksLos Angeles stopped construction on a new hydroelectric powerplant, but laid off only about 400 construction workers. An appealto OEP for a reconsideration was also denied.

23 ESC 102, Sec. 502 (5).24EPC Notes, August 24, 1971.

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EXEMPTIONS

During the first two months of the freeze the National Officedenied exemptions to about a dozen other cities that wanted toincrease rates for water, sewer service, or trash collection. Portland,Michigan, wanted to increase sewer rates from $7.67 to $25.34 perquarter in order to build a new sewage treatment facility that hadbeen ordered by the State of Michigan. New Orleans proposedincreases in sewer and water rates and the wages of city employees.The needs of these cities to abide by State laws on bonded in-debtedness and to control water pollution were given careful con-sideration, but it was decided in all instances, as in the Los Angelescase, that rate increases could be deferred until after the freeze. Insome cases applicants had not demonstrated that alternativemethods of financing would not suffice for the freeze period.

The basic policy in this area was that taxes were not frozen butthat charges made by a municipality for specific services, such aswater, sewer, or gas service, were subject to the freeze; they couldnot be increased, nor could new charges be inaugurated.25 Therewas some discussion of modifying this policy to allow more flexi-bility. The possibility of allowing cities to establish a sewer servicecharge to cover costs formerly covered by taxes was rejected.26 Alater proposal to except from the freeze all municipal water andsewer rates was also rejected.27

On October 13, however, CLC approved the decision that putCresco, Iowa "on the map." Cresco was authorized to increasewater and sewer rates, because it was already in default on pay-ments for construction of a sewage disposal plant and had noalternative way to raise money. Its case was similar to previousones except for the extremity of financial distress, which was con-sidered equivalent to imminent bankruptcy.28 A similar exemptionfor water rates was granted to West Daviess County Water District,Owensboro, Kentucky, on November 4. Without the increase theDistrict would not have been able to meet bond payments due inMarch 1972, and might have been forced into receivership.29

Both of these water-rate exemptions had originally been deniedby OEP Regional Offices, but the cases were reviewed and theexemptions granted at the national level. The proposal to grant ablanket exception for water and sewer rates was discussed again onOctober 21 but was deferred to the Price Commission, since the

25 See p. 92.26EPC Notes, September 13, 1971; SPG 3.1509, issued September 14, 1971.^EPC Notes, October 9 and 12, 1971.28EPC Notes, October 12 and 13, 1971; OEP Press Release 470, October 13, 1971.

Notes, November 4, 1971; OEP Press Release 485, November 5, 1971.

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EXEMPTIONS

rate increases would not take effect until after November 13. TheFarmers Home Administration reported at that time that it hada backlog of 300 requests from small municipalities for loans forwater facilities but could not grant such loans until rate increasessufficient to repay them were authorized.30

A North English, Iowa, request for a water-rate increase to payfor drilling a new well presented a unique problem. The old wellcasing had deteriorated to the point where the water containedfive times the recommended level of dissolved solids and largeamounts of sodium. Protracted use of such water can cause healthproblems, particularly for persons on low-sodium diets. The yel-lowish color and bad odor of the water caused sales of beer andsoft drinks in the town to rise sharply.

To drill a new well the town had to increase water rates by 50percent, and it requested an exemption for this increase. The OEPRegional Office denied the request because OEP did not haveauthority to grant an increase that would take effect after Novem-ber 13; a second request, submitted at the national level, wasdenied on November 13. To the great relief of the people inNorth English, Phase II regulations left room for the rate increase,and work on the new well was allowed to proceed.31 The caseillustrates a difficulty experienced by several other cities: that it wasimpossible to obtain authorization during the freeze period for arate increase that would take effect after November 13, since OEPcould not grant it and the Price Commission was not yet operative.

Prices and Rents

The first policy decision on prices that could be called an excep-tion was included in the original Executive order, which exceptedall "raw agricultural products" from the freeze.32 With the assist-ance of the Department of Agriculture, OEP produced a lengthylist of foodstuffs to clarify what was "raw" and what was "proc-essed." The category of raw products was stretched somewhat toinclude semiprocessed foods like shelled nuts and honey that hadbeen strained from the comb and put into jars.33

OEP also classified fish products as raw agricultural products;

Notes, October 21, 1971.31 The Price Commission authorized all regulated public utilities to raise their

rates providing the increase was approved by the local regulatory agency. SeeFederal Register, December 16, 1971, Sec. 300 (16).

32 Executive Order 11615, August 15, 1971, Sec. I.e.33 ESC 101, Sec. 409 (2).

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these were excepted from the freeze "until they are shelled,shucked, skinned, or scaled." 34 Some problems arose in determin-ing precisely when fish becomes a processed product, since somemodification of raw fish normally occurs aboard the fishing vessels.

Processors of foodstuffs \tfere inevitably caught in a squeeze be-tween the unregulated prices of raw foods and the regulated pricesof their products. Packing companies in Texas that process yearlingbeef presented an urgent exemption request in October, claimingthat a 2 cents a pound increase in yearlings on the hoof had wipedout their \i/z cents a pound margin. They stated that 26 packingcompanies were heading for bankruptcy and massive layoffs ofpersonnel. This request was referred to the Price Commission.35

An expansion of the exceptions list came on August 20 whenOEP listed as excepted categories: raw agricultural products, schooltuition, stocks and bonds, and exports; a few days later tuition wasremoved from this list.36 The tuition question was later clarifiedby the stipulation that increases that were announced and on whichdeposits had been made before the freeze would be allowed tostand. School room and board charges were handled according tothe same norms.37

The policy of "holding the line" was firmly maintained withrespect to individual price exemptions. Some firms did lose moneybecause of the freeze, but their resources were generally sufficientto absorb these losses for the brief period of 90 days. When theywere not, and bankruptcy appeared to be a real possibility, the casewas usually presented to CLC for guidance.

CLC policy required that firms claiming imminent bankruptcyshould first utilize all other means of relief, leaving an exemptionfrom the freeze as a last resort. CLC took the position that, ifimminent bankruptcy were accepted as sufficient reason for anexemption, the exemptions would become a mechanism for prop-ping up inefficient firms that were on the verge of failure beforethe freeze. This view was embodied in a statement accepted by theExecutive Policy Committee on September 2:

Impending bankruptcy per se should not be a justification for exemption. Itmay, however, be accepted as one criterion in considering requests for exemptions.The burden of proof lies with the petitioner in demonstrating the validity of

34 ESC 101, Sec. 409 (4).^EPC Notes, October 21, 1971. The Price Commission allowed purchasers of

raw agricultural products to pass on price increases provided they did not increaseprofit margins.

38 OEP Economic Stabilization Regulation 1, August 20, 1971, Section 4.b; Amend-ment omitting tuition August 23, 1971.

37 ESC 102, Sec. 403 (5); see p. 84.

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his difficulties. Specifically, he must demonstrate that all the alternatives toexemption (reducing costs, improving efficiencies, etc.) open to him have beenexhausted.38

Besides exhausting all other means of relief, the petitioner had toshow that the bankruptcy was due to the freeze rather than to poormanagement, that the firm would survive if an exemption wasgranted, and that inflationary effects of the exemption would beminor.39

The leading case on this issue was that of the Kentucky Trans-port Corporation, a trucking firm whose sole customer was theA & P grocery chain. The firm had reduced its rates in Februaryand May 1971, with the understanding that they would be raisedagain in early August, when a 30 percent wage increase and thepurchase of new equipment would add to costs. On August 6, thetrucker and grocery chain agreed to a rate increase, to take effectAugust 22. A & P did not intend to pass its increased costs on to itscustomers. When the rate increase was blocked by the freeze, theorder for new equipment was canceled; but even so the companystated that it would soon be bankrupt without the rate increase.The case was extensively investigated by IRS and OEP and wasanalyzed by Labor and Commerce Department experts in Wash-ington. The exemption was denied on October 6.40 Noting thedecision the next day, The Wall Street Journal quoted a CLCanalyst as saying the denial was necessary in order to avoid "astream of other requests" of a similar nature.41 In mid-OctoberOEP was informed that Kentucky Transport had avoided bank-ruptcy by obtaining a loan from A & P o n favorable terms.

The dilemma over whether to grant exemptions in cases of al-leged imminent bankruptcy or severe financial loss troubled OEPthroughout the freeze. It seemed unjust, on the one hand, to denyrelief to those who were particularly disadvantaged by the timingof the freeze announcement. On the other hand, if a policy ofgranting exemptions in "hardship cases" had been adopted, thestream of exemptions could well have undermined public supportfor the freeze by giving the impression that it was not being en-forced equitably. The dilemma was resolved in favor of holdingthe line in all cases. After the Kentucky Transport request wasdenied, OEP denied about a dozen others that included a claim of

Notes, September 23, 1971.38 Ibid.*°EPC Notes, September 1, 9, 14, 24, and October 13, 1971. OEP Press Release

466, October 7, 1971." Wall Street Journal, October 7, 1971, p. 1.

I l l


EXEMPTIONS

imminent bankruptcy, but whose circumstances were less urgent.42

The claims of severe hardship came from many parts of theeconomy, but there was a concentration of cases in one segment—the distributors and fabricators of steel. Most steel prices had in-creased about 7 percent in June and another 8 percent in earlyAugust, and few users of steel had raised their prices to cover theAugust increase before the freeze was announced on August 15.Steel is generally the major cost item for distributors and fabrica-tors of steel products (often over 50 percent of costs), and somealso had to cover recent wage increases. One pipe manufacturerin Texas asked that either the users of steel be allowed to raisetheir prices or that the steel makers be forced to roll theirs back.The latter solution was impossible, since the steel price increaseantedated the freeze; but the case is a prime illustration of thekind of squeeze that inevitably accompanies any price freeze. Whenpresented on September 27 with a list of 22 exemption requestsfor steel forgers, foundries, finishing mills, and makers of steeltanks, shelving, stampings, pipe, screws, and wire, the ExecutivePolicy Committee did not find any of the companies in such direstraits as to warrant an exemption, and all were denied. Requestsfrom eight other steel users were denied within the following week.

A different kind of pressure was presented by an exemptionrequest from three bus companies in New York City. The com-panies, which provided most of the transportation for schoolchildren in the city, threatened to stop running buses if the ex-emption was not granted, and this loss of service would haveproduced chaotic results in the school system. There had been noprice increase for three years, and a new 3-year contract called forprices to increase from $87 a day to $108 a day per bus. Thecompanies claimed this increase was needed to cover higher wages,equipment costs, license fees, and increased obligations includedin the new contracts. The request was denied because the IRSinvestigation determined that the companies would experienceonly small losses during the freeze and could make these up duringthe balance of the contract period.43

School lunch prices also presented unique problems, largelybecause many States forbid deficit operation of lunch programs.Since the cost of milk and other foods had increased since theprevious school year, about 25 school districts asked for exemptionsto increase prices on lunches or milk, and two States asked for

^Interview with C. A. Norred, Jr., November 18, 1971.«EPC Notes, September 14, 17, and 22, 1971.

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EXEMPTIONS

blanket exemptions for all their school districts. Proposed increasesranged from 5 to 15 cents on lunches and from 1 to 5 cents for ahalf-pint of milk. The Executive Policy Committee agreed to con-sider exemption requests when programs were operating at a deficitand could not legally do so, additional funds were not available,all other remedies had been exhausted, and the program wouldprobably terminate in the absence of an exemption. No exemptionsfor school lunches were granted, however.44

The West Coast dock strike, which began July 1, 1971, neces-sitated a shift to air freight for food and other essential itemsshipped to Hawaii. The State of Hawaii also chartered two shipsto bring goods from Vancouver, B.C., Canada, a move which in-creased shipping costs between 35 and 40 percent. (Goods weremoved by surface from western States in the U.S. to Vancouver.)The Governor of Hawaii requested exemptions to allow the higherair freight and shipping costs to be added to goods sold in Hawaii,claiming that this was the only way to assure that essential goodswould be available. The problem persisted even after the long-shoremen returned to work early in October, since the added costshad already been incurred. No exemption was granted in this case,however.

As November 13 approached, the conviction grew that mostpending cases could best be handled by deferring relief to PhaseII. The Central Railroad of New Jersey was such a case. The firmhad been in bankruptcy since March 1967, and its operations wereclosely regulated by Federal and State laws. A special agreementwith the U.S. Department of Transportation stipulated that a 20percent fare increase be effected as part of a program that wasintended to show the railroad could be self-sustaining. This in-crease was approved by the State of New Jersey on August 4, 1971,but was delayed by the freeze until after November 13.

The Yellow Cab Company of Philadelphia also had a seriousproblem concerning a rate increase. The Pennsylvania PublicUtility Commission approved a 10 cent per mile rate increase onSeptember 10, and the company claimed it would have to ceaseoperations at the end of September if the increase was not effectedby then.45 A cessation of operations would have thrown the com-pany's 4,000 employees out of work and eliminated 90 percent of

44EPC Notes, September 28, 1971; Cf. also October 20 and 28, 1971.45 The claim was that the company's liquid assets would at that time drop below

the amount required for it to remain a self-insured motor carrier of passengers underPennsylvania law, and that it would have to cease operations at that point. See EPCNotes, October 18, 1971.

113474-893 O - 72 - 9


EXEMPTIONS

Philadelphia's cab service. The denial of the exemption on Octo-ber 18, however, did not result in any cessation of service.

REA Express presented an urgent request for rate increases forfreight moving into or out of New York City, claiming heavyfinancial losses because of increased costs in the New York area.OEP refused to act on this until the appropriate Federal regulatoryagencies had approved the increases, and Phase I ended before thisoccurred.46

A number of small businesses made claims of imminent bank-ruptcy, but it was often difficult to perceive the exact relationshipbetween the bankruptcy and the freeze. A small furniture companyadmitted that its losses were due to poor management, but it hadrecently fired the president who had set prices too low to covercosts. The company stated it would have to make price increasesranging up to 12 percent in order to avoid bankruptcy. A nonprofitenvironmental magazine was losing over $10,000 a month andwanted to increase subscription prices. A purchaser of old news-papers found he could not attract a sufficient volume of papers atthe prices he was paying and said he would have to pay more orgo out of business. A home for maladjusted boys and one for theaged said they would have to close unless they could increase rates.These requests were all deferred until Phase II.

As noted earlier, only 12 percent of the exemption requests re-ceived at the National Office related to rents, and very few of thesewere presented to CLC. Many came from landlords of fairly lowincome who rented out a house or a few apartments and said theywere losing money on them; but the amount of money that wouldbe lost over the 90 days was fairly small. There were also requestsfrom large apartment complexes, but there were no cases in whichan exemption was granted.

TRANSITION

President Nixon outlined his plans for Phase II in an address tothe Nation on October 7 and in a subsequent Executive orderwhich established the Pay Board and the Price Commission. Theseactions focused public attention on the postfreeze period and gen-erated a number of exemption requests related to that period. OEPreferred all requests that clearly pertained to Phase II to the PayBoard, the Price Commission, or IRS.

"EPC Notes, November 8, 1971.

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EXEMPTIONS

The major problem in the last two weeks of the freeze was de-termining who should handle the requests received during thattime, since only OEP had authority to grant exemptions throughNovember 13, and only CLC after that date. Norred proposed that,in order to have time to clear out its backlog, OEP should stopaccepting requests on October 29, referring all others to IRS tobe processed. It was decided, however, that OEP should process allrequests through November 13. After November 8, Regional Direc-tors either issued denials or transferred cases to the appropriateIRS office. On November 12 the OEP Regional Offices transferredall case files to local IRS offices, and the OEP National Officetransferred all of its exemptions files to the IRS National Office.

CONCLUSIONS

The record of exemption requests received and of actions onthem tells us something about the way the freeze affected theeconomy. The number of requests received was small in relationto the potential applicants, indicating that businessmen were gen-erally accepting the restrictions imposed by the freeze. The toneof most applications and of petitioners' conversations with OEPwas one of acceptance and understanding, even when petitionswere being denied.47 This general public acceptance made it possi-ble to adhere to the firm policy on exemptions, which was con-sidered essential to the success of the freeze.

Public acceptance seemed to stem primarily from the generaldesire to conquer inflation. The average citizen was willing tobear a temporary inequity if he saw it as a means of slowing infla-tion, since this would provide everyone with long range gains inreal purchasing power. There was some resistance, however, to thepolicy of allowing so few exemptions. Denials that generated themost criticism were those affecting wage increases, group insuranceplans, school lunch programs, water or sewage facilities, and smallbusinesses.48

Many small businessmen complained that they were treated tooharshly. It was argued that large corporations could absorb lossesfor 90 days and make them up later, but losses in the same periodby a small, one-owner business could be disastrous. Businesses were

47 C. A. Norred, Jr., Memorandum for the Record: Post Action Critique of theFreeze and Exemptions Processing, November 10, 1971.

48 See After-Action Reports from Regional Directors to OEP Historian, Regions1, 4, 6, 8, 10.

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EXEMPTIONS

also affected differently according to the method of merchandisingused. Some use inflated "list prices" and offer large discounts andspecials, which could easily be discontinued during the freeze,whereas in other businesses the list price is the normal sellingprice and may represent only a small markup.

The Administration's recognition of these inequities was re-flected in the statement released as background for the President'sspeech announcing plans for Phase II:

If a program is to be durable, it must appeal to the American people asbasically fair. Arbitrariness and inequity will be tolerated briefly for an importantpurpose, as it is being tolerated during the freeze. But this will not last for long.Therefore, more concern for fairness is required, even though perfect fairness isdifficult to attain.49

Solutions to most of these inequities were found early in PhaseII, when moderate increases in prices, wages, and rents were al-lowed and some segments of the economy were entirely decon-trolled. Whether more could have been done to ease the burdensduring the freeze itself is an open question. Most of OEP's Re-gional Directors felt that more exemptions should have beengranted. They were the ones who held the "front line" positions,dealing directly with merchants, landlords, school superintendents,wage earners, etc., and were therefore perhaps more impressedwith the need for relief than with the need to maintain a nationalstrategy. Other suggestions made by Regional Directors in After-Action Reports were: allowing Regional Directors to grant exemp-tions in some cases of a local nature and involving small sums, thusavoiding the fanfare of national publicity; having more detailedpolicies and procedures planned in advance of need; providingearlier relief from the inequities of the freeze; and making thetransition from freeze to postfreeze periods a gradual one.

49 Background Paper on Post-Freeze Economic Stabilization Program, The WhiteHouse, October 7, 1971.

116


VI

Compliance and Enforcement

THE GOAL: VOLUNTARY COMPLIANCE

An essential ingredient of the New Economic Policy was the useof emphatic means to slow inflation. The President felt the situa-tion called for more than an incomes policy that would dependentirely on voluntary support, so he imposed a wage-price freezethat was backed by legal sanctions. At the same time, he sought toavoid the establishment of a large enforcement staff by appealingfor voluntary support of the freeze.

The vast majority of the American people, the President felt,would support the freeze and comply with it voluntarily, thusmaking an elaborate enforcement mechanism unnecessary. In hisAugust 15 address, he stated:

. . . while the wage-price freeze will be backed by government sanctions ifnecessary, it will not be accompanied by the establishment of a huge price-control bureaucracy. I am relying on the voluntary cooperation of all Americans-workers, employers, consumers—to make this freeze work.1

Compliance with the freeze was voluntary in the sense that itwas willingly given, not in the sense that it would have been forth-coming in the absence of any law. Most laws in a well run societyenjoy widespread public support and are therefore complied withwillingly. Penalties for infractions are intended for the few whodo not comply willingly. By applying the sanctions provided bylaw, the government eliminates pockets of noncompliance andconvinces the members of the law-abiding majority that the sacri-fices they are making are imposed impartially on all.

The freeze was not much different from other legal obligations,therefore, in terms of the degree of voluntary compliance expected.It was unique in that it imposed unfamiliar obligations with noadvance warning. This is why it was essential to launch a vigorous

1"The Challenge of Peace," Address by President Richard Nixon, August 15, 1971.

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COMPLIANCE

public education effort using the press, TV, and speeches to groupsof citizens. This educational effort sought to clarify the obligationsimposed and convince the public that curbing inflation was a majornational priority and that the means being employed would achievethat goal. This effort to educate and convince was complementedby well publicized actions to ferret out violators, investigate com-plaints, and enforce legal sanctions when voluntary compliance wasnot forthcoming.

For the freeze to succeed it had to have the support of business-men, union leaders, and landlords—the major decision makers inthe Nation's economic structure—as well as of the general public.Both the general public and the economic decision makers sup-ported the freeze, but some complaints were heard from the lattergroup. While all desired a stable economy, not all agreed that afreeze was the best way to achieve it. Particular regulations orinterpretations were criticized on the grounds that they placed theburdens more heavily on some economic groups than on others.These reservations might not have been expressed in a major waror crisis; but in a "business as usual" atmosphere the averageAmerican does not expect to be asked to make sacrifices beyondthe level of minimal inconvenience. From the general public, onthe other hand, there was little tolerance for violators. During the90-day freeze, public opinion was strongly on the side of complianceby all.

AUTHORITY AND PROCEDURES

OEP's mandate to enforce the freeze included the authority torequire businesses to keep adequate records and to request theJustice Department to take violators to court.2 OEP later delegatedto IRS the authority to investigate all complaints and to monitorcompliance by making spot checks of business establishments.3 IRSDistrict and Subdistrict offices were the normal places for filingcomplaints, but they were also accepted at ASCS offices and for-warded to IRS. IRS agents performed all the investigations relatedto complaints.

When IRS investigators determined that there was a violation,they tried to obtain immediate compliance and were able to do so

2CLC Order No. 1, August 17, 1971.3 OEP Economic Stabilization Order 1, August 19, 1971; Msg 29, August 29, 1971;

Ltr, Lincoln to John B. Connally, Secretary of the Treasury, August 25, 1971; MsgAlfa 43, September 3, 1971.

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in 98.6 percent of such cases.4 They normally settled the simplecomplaints by phoning the alleged violator to obtain his side of thestory and, if there was a violation, asking him to comply. In thesecases the violator was asked to submit a signed statement of hisintention to comply. Where some difficulty was encountered eitherin obtaining the facts or in gaining compliance, a visit to the sitewas made.

Investigators gave special attention to what were called "majorcomplaints"—those expected to have substantial impact eithereconomically or in terms of publicity. Examples of the latter werecomplaints against celebrities, public officials, and governmentalentities; multiple complaints against the same party; and com-plaints that had been made public through the mass media. Thosethat might have a major economic impact included complaintsagainst chain stores or national organizations, rent cases involvinga large number of tenants, and wage cases involving a large num-ber of employees. These "major complaints" were also the mostlikely to be given a follow-up check to make sure an agreement tocomply was actually carried out.

IRS agents also conducted spot checks on businesses they visitedin the normal course of their duties. These spot checks were begunearly in the freeze period, and in mid-September were put on amore formal basis with a carefully designed sampling system andreporting requirement.5 Agents checked wage agreements, leases,prices, and the adequacy of ceiling price records. When a violationwas discovered, the proprietor was asked to correct it. If he did so,no further action was taken. If he did not comply, the violation wasrecorded in the IRS District Office and processed thereafter in thesame manner as a citizen's complaint.

IRS offices forwarded to an OEP Regional Office those cases theycould not resolve. They normally included in the file affidavits fromcomplainants and similar material that would be required forlitigation. The 214 such cases received by OEP Regional Officeswere designated Potential Court Cases (PCC's), but only a smallpercentage of these actually reached the courts. The RegionalDirector and the Assistant U.S. Attorney assigned by the JusticeDepartment collaborated on processing compliance cases. Theywere able to obtain compliance in some cases and closed others bya determination of "no violation." Unresolved cases were reviewedfor adequacy of documentation and then forwarded to the Na-

4 Based on figures in Table 6, below.5Msg Bravo 201, September 21, 1971, giving the text of a message from the

Deputy Commissioner of IRS to all Regional Commissioners.

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tional Office. At this point the Regional Director sent the violatora "last chance" telegram asking for a reply within 24 hours andindicating that the Government might take "further action" if hedid not comply.

The 73 cases forwarded to the National Office were designatedRecommended Court Cases (RCC's). Compliance activities in theNational Office were centered in the office of the General Counsel,Mr. Elmer F. Bennett, who established a Compliance Branch toevaluate and process compliance cases. This.Branch was headed fortwo months by Mr. Raymond Snead and for the final month by Mr.Charles A. Gibb. Snead was a former OEP employee detailed fromthe Treasury Department, and Gibb was detailed from IRS. OEP'sliaison with the Justice Department was greatly assisted by havingone of the Department's own attorneys, Mr. Charles R. Mc-Conachie, present through most of the freeze to help review casesand assure the adequacy of evidence. Constant liaison was main-tained with Assistant Attorney General L. Patrick Gray III andwith the General Counsel for CLC.6

A further effort was made at the national level to close cases byobtaining compliance. "Jawboning" was in fact a major componentof the compliance effort; it was successfully practiced by IRSofficials, by OEP's Regional and National Offices, and by JusticeDepartment attorneys. The National Office also closed some casesby a determination of "no violation" after fully reconsidering thelegal evidence. Changes in policy or in its interpretation resultedin the closing of some cases.

Only those cases that appeared suitable for litigation were for-warded to the Justice Department. Decisions as to whether litiga-tion was warranted were made at periodic meetings attended byOEP Director Lincoln, Assistant Attorney General Gray, and theExecutive Director of CLC, Mr. Arnold R. Weber. Lincoln andWeber sought to bring violators to court as quickly as possible, inorder to maintain a vigorous pace of enforcement. The JusticeDepartment, on the other hand, was understandably inclined tomove more deliberately and emphasized the need for strong evi-dence before taking cases into court. All cooperated in the effortto get strong cases quickly, and the record (see Table 8) indicatesa reasonably successful achievement of this goal.

A means of assuring compliance that received little publicity

6 The position of CLC General Counsel was held successively by Mr. ArnoldLewis and Mr. William E. Nelson. At the beginning of Phase II, Nelson becamechief of the Economic Stabilization Section of the Civil Division in the Departmentof Justice.

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was use of the Federal Government's purchasing power. The Fed-eral Regulations and Purchasing Review Board, headed by Mr.Caspar Weinberger, declared on August 20 that in placing con-tracts for goods and services Government officials "should consider,as a decisive factor, whether contractors are in compliance withthe freeze." 7 The Department of Defense ordered its contractingofficers to carry out this directive and to report any suspectedviolations of the freeze.8

THE RECORD OF COMPLIANCE

Compliance with the freeze was generally high. Most people wereupset by continually rising prices and seemed ready to support anyprogram that promised to halt inflation. While it is true that thepublic was more interested in stopping price increases than payincreases, there was still a general willingness to go along with theprogram in hope that it would bring some improvement.

The most objective measure of general compliance was the IRSspot checks of businesses's all over the country. Formal, systematicchecks were begun in mid-September and covered a total of 85,444business establishments during the remainder of the 90-day period.IRS found that 91.8 percent of those visited were in compliance,and an additional 4.2 percent agreed to comply when told theywere violating the freeze. The remaining 4 percent did not complyimmediately; complaints were filed at IRS offices and were thenprocessed along with complaints from the general public. Many ofthese violators did comply when a little more pressure was applied.9

If it is assumed that these percentages are statistically valid forbusiness establishments in general, this would mean that non-compliance, whether deliberate or inadvertent, was limited toabout 8 percent of all business establishments. Even this figuremust be qualified, as it includes instances where one or two itemsin a market were overpriced, out of perhaps 20 or 30 checked.

Analysis of the complaints received by IRS also attests to wide-spread support for the freeze. Of the complaints processed duringthe freeze, 62 percent resulted in a finding of "no violation"; 37

7 Federal Controls (Washington: Bureau of National Affairs), August 20, 1971.8Daily Report for Executives (Washington: Bureau of National Affairs), August

20, 1971.9 Source: OEP Weekly Summary Report to CLC Chairman, November 13, 1971.

See Chapter IX for evidence of compliance with the freeze based on the ConsumerPrice Index and the Wholesale Price Index.

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percent did involve violations, but the parties agreed to complyas soon as the violation was brought to their attention. This leftless than one percent to which enforcement procedures had to beapplied. Table 6 shows the way IRS responded to all complaintsreceived during the freeze.

TABLE 6.—Disposition of Complaints by IRS

IRS found no violation 24,547 (62.2%)IRS obtained compliance 14,701 (37.3%)IRS forwarded to OEP as PCC's 214 ( 0.5%)IRS retained for Phase II processing 6,925

Total complaints received 46,387

Note: The percentages apply to the total processed in Phase I, which was 39,462.The abbreviation PCC means Potential Court Case, which was explained above. The6,925 complaints retained by IRS represent just over one normal week's flow ofcomplaints, which was about 5,000 during the latter weeks of the freeze. Source ofthese figures is OEP Weekly Summary Report to CLC Chairman, November 13,1971, and OEP General Counsel's list of PCC's, November 13, 1971.

The OEP actions listed in Table 7 include those taken at theRegional Offices as well as at the National Office. The Table showsthe status of cases on the day the freeze ended and the status onDecember 2. By that date OEP had disposed of the six cases it heldwhen the freeze ended: two by a finding of "no violation," two bycompliance, and two by referral to the Justice Department.

TABLE 7—OEP*s Disposition of Potential Court Cases

Nov. 13 Dec. 2

No violation 25 27Compliance obtained 70 72Held by OEP 6 0Cases returned to IRS 76 76Forwarded to Justice Department 37 39

Total Potential Court Cases 214 214

Source: OEP General Counsel's lists of PCC's, November 12 and 13, 1971, revisedon December 2 on basis of interview with John D. Simpson, Executive Assistant toGeneral Counsel. Some of the cases listed in the first two categories were resolvedafter referral to the Justice Department; the total number of cases actually forwardedto the Justice Department was therefore somewhat more than the 39 shown in thetable.

The cases designated "no violation" included some borderlinesituations in which the evidence against the violator was so weakthat taking the case to court would not be worthwhile. The casesreturned to IRS required some further investigation or documenta-tion and were subsequently resolved under the processes established

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for Phase II. From the 39 cases referred to it, the Justice Depart-ment filed eight suits involving only Phase I violations. Elevencases regarding tickets for sporting events were held in abeyancebecause they hinged on pending suits, and 10 teacher salary caseswere dropped when the salary increases were granted.10

The Bureau of the Census tabulated data on the freeze. Its reporton complaints of violations showed that 75 percent pertained toprices, 19 percent to rents, and 6 percent to wages. The reportedprice violations were listed by business category, and the threelargest categories were: retail trade, 56 percent; services and re-pairs, 8 percent; and insurance, 7 percent. It should be noted thatthese percentages are based on alleged violations and that 62 per-cent of those alleged proved to be unfounded. Individuals (asopposed to businesses or organizations) made 78 percent of theviolation reports.11

ENFORCEMENT

Executive Order 11615 authorized civil suits for injunctions andcriminal suits with fines of up to $5,000 per violation.12 An in-junction simply forces a particular violator to comply with the law,whereas a fine has the added effect of punishment, one purpose ofwhich is to deter others from similar violations. All Governmentsuits brought to enforce the freeze were suits for injunctions. Itwas felt they would be sufficient to ensure compliance, and theywere preferable in that they can be processed more quickly andrequire less of a burden of proof than do criminal suits.

Reliance on injunctive suits fitted in with the strong emphasison voluntary compliance that characterized this program. It alsoseemed more suitable than levying fines in many instances, becausenew policies and regulations were issued every few days and thepublic had a limited time in which to assess its obligations andclarify the legal status of the many regulations and interpretationsthat were issued. For the same reasons, those charged with enforc-

10 These cases are discussed in subsequent sections. The 10 remaining cases wereeither incorporated into suits involving both Phase I and Phase II violations ordropped due to lack of sufficient evidence. It is worth noting that Phase I violationswere not simply dropped because Phase I had ended; as late as March 7, 1972, theJustice Department filed suit against Robert Dedoes of Kalamazoo, Michigan, fora rent violation that occurred in Phase I. The suit was later expanded to includea Phase II violation and was unresolved as of this writing.

11 Source: OEP Weekly Summary Report to CLC Chairman, November 13, 1971."Executive Order 11615, Sec. 7.

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ing the freeze felt that if they could obtain injunctions in severalcases they would thereby make it easier to obtain voluntary com-pliance from others in similar circumstances. Injunctions wouldprove to the skeptical that the regulations were legally enforceableand that the Government was serious about enforcing them.

The effort to bring several typical cases of noncompliance to ahead early in the freeze period was partially motivated by a desireto establish the "credibility" of the freeze itself. Some consumergroups and labor unions had fixed on the nonavailability of pricelists as evidence that prices were not effectively controlled whilewages had been rigidly frozen. The AFL-CIO established "watch-dog" groups throughout the country to monitor price increases.13

A report appearing in the New York Times charged that 98 outof 102 Manhattan markets checked by one union group wereviolating the freeze because they did not have "price lists" avail-able. Although this story was based on an erroneous interpretationof the regulations, it and others like it had considerable negativeimpact.14 The Administration's reports that the freeze was workingand voluntary compliance was at a high level were sometimesgreeted with the suspicion that the data actually indicated "a lackof adequate monitoring and enforcement rather than patriotismand selflessness." 15

Since opposition from newspapers, unions, and consumer groupscould have undermined public confidence in the effectiveness andfairness of the freeze, an effort was launched in mid-September tostep up enforcement efforts. IRS put new emphasis on monitoringprices, following up telephoned promises of compliance with on-site checks, and rapidly forwarding noncompliance cases to OEP.16

OEP speeded up its evaluation and processing of cases and for-warded to the Department of Justice several considered suitablefor litigation.17 Between September 23 and 30 the Justice Depart-ment filed five suits for injunctions. In a statement to the press onSeptember 26, Arnold Weber made it clear that these suits wereintended to show the Government's determination to enforce thefreeze: "Today's announcement . . . emphasizes our intention to

13 Wall Street Journal, October 15, 1971, p. 18.14 "98 Markets Accused of Violating Price Freeze," New York Times, September

16, 1971. The failure to produce "price lists" was not a violation because the onlyrequirement in effect at that time was that "a record" of transactions during thebase period should be available.

™New York Times, September 17, 1971, p. 25.16Msg Bravo 201, September 21, 1971, giving the text of a message from the

Deputy Commissioner of IRS to all Regional Commissioners."Messages Bravo 180, September 15; Alfa 87, September 20; and Bravo 212,

September 27, 1971.

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be more forceful when necessary. The problem we have to solve—economic stability—is a serious one and we are serious about it." 18

Although considerations of public impact and deterrent effectdid motivate this push for litigation, publicity value did not de-termine the selection of individual cases. Three cases were localrent violations with a negligible impact on the national economy.The other two suits ran the danger of a negative public reactionbecause they attacked groups with considerable popular support-teachers and a football team. The cases were selected, in otherwords, more because they were available at the time than becausethey were considered ideal in terms of impact and deterrence.

The vigorous Government efforts to assure compliance did notquiet all doubts about the efficacy of the price freeze. A series ofarticles appearing on the front page of the New York Times, forinstance, asserted that a survey of 22 stores had revealed priceincreases on 25 percent of the meat cuts covered by the surveyand price increases of 25 percent on some types of fish.19 WhenIRS agents made a special check of meat prices in the same stores,however, they found only two violations.20 In fact, the survey usedby the Times bore little relation to ceiling prices established bythe freeze and did not prove that any violations had occurred (asthe article on fish prices admitted). Nevertheless, these and similarpress accounts continued to belabor the theme that the price freezewas ineffective.

Besides the suits mentioned previously, three additional suitsfor injunctions were filed during the freeze. The eight suits withthe U.S. as plaintiff are listed in Table 8. There were also severalPhase II suits which included charges of Phase I violations; theseare not included in the table, as they belong more properly to thehistory of Phase II.

In addition to the suits filed by the Government, there wereover 80 suits on Phase I matters in which the Government was thedefendant, filed an amicus curiae (friend of the court) brief, or

18 Washington Post, September 26, 1971.19 New York Times, October 25 and 29, 1971, and November 1, 1971. The October

25 and November 1 articles are reprinted in Economic Stabilization Legislation,Hearings before the Senate Committee on Banking, Housing, and Urban Affairs,92d Congress, 1st Sess. (Washington: Government Printing Office, 1971), pp. 334-339.

20 New York Times, November 5, 1971, p. 28.

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TABLE 8.—Phase I Suits Filed by the U.S. Government

DateFiled

Sept. 23Sept. 24Sept. 27Sept. 28Sept. 30Oct. 18Nov. 2Nov. 11

Defendant

Jefferson Parish School BoardDwight L. LiebAtlanta FalconsJack L. JoyceMartin J. DeStefanoHuber InvestmentIntone CorpOkla. City School Board

Category

Teacher salariesRentTicket pricesRentRentRentRentTeacher salaries

Outcome

LostWon(Pending)

WonWonWonWonDropped

simply took an interest because the suit involved the freeze. Thesesuits are listed by category in Table 9.

TABLE 9.-All Phase I Suits

U.S. U.S. AmjcusCategory Plaintiff Defendant Curiae Private Totals

Rent 5 2 f~ 8Wages 11 2 13Teachers' salaries 2 15 10 31 58Sporting events 1 6 1 8Other price cases 0 3 2 5

TOTALS ~ 8 37 l o ^7 ^2

Sources: Memo, L. Patrick Gray III to Donald Rumsfeld, December 22, 1971, Subj:Status Report, Legal Proceedings under Executive Orders 11615 and 11627; interviewwith WilHam E. Nelson, April 21, 1972. Suits charging both Phase I and Phase IIviolations are not included in this table.

There was strong public interest in the number of complaintsbeing received, the way they were being investigated, and theactions taken against those who did not agree to comply. It wasnot always easy to satisfy this public desire for knowledge. Asreported earlier in this chapter, 62 percent of the complaints werewithout foundation, and most of those who were in violationagreed to comply with little urging. The few "tough" cases remain-ing required thorough investigation and documentation beforethey could be taken to court, and no information was released onthem until a suit was filed. The names of violators who compliedwillingly were rarely released at all, as the Government did notwant to embarrass needlessly those who had violated the freezethrough ignorance or inadvertence. This policy of maintaining theconfidentiality of investigations also came in for some criticismfrom consumer groups, but was firmly adhered to by OEP as themost equitable solution to a difficult problem.

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Rent Cases

Rent violations constituted the preponderance of the Govern-ment's Phase I suits, accounting for five of the eight suits filed.This came about because, in the limited time available, the rentcases were the easiest to verify and document and because aggrievedtenants were usually quite willing to appear as witnesses againsttheir landlords. The complexities that delayed many price andwage cases were simply not present in the rent cases.

The first three rent suits were filed between September 24 and30, and the Government had won all three by October 22. 21 Onelandlord had made minor improvements to his apartments andclaimed his rent increases were permitted to cover the cost of"capital improvements." The relevant regulation 22 required thatthe cost of improvements be at least equal to three months' rent,while in his case they equaled about half of one month's rent.Another landlord had purchased his apartments in July and triedto raise the rents on September 1, but was turned back. Thethird case involved apartments near the University of Texas thathad lower rates for the summer months than for the school year.In reverting to the winter rates at the end of August, the landlordtacked on an extra $10.00 a month, but was required to give thisup.

The fourth rent suit was against a large real estate firm rentingover 1,000 units. The firm contended that the Government shouldregulate rents the way it did prices, using the "10 percent trans-action rule," 23 and had raised rents on about 37 houses to bringthem up to the level of similar units. A judgment in favor of theGovernment was obtained on January 12, 1972.

Wages and Salaries

The Government's effort to prohibit pay increases that wereauthorized by contracts signed before the freeze, but scheduled totake effect during the freeze, was successful in the short run butaroused considerable opposition among the affected groups. Theblunt opposition of organized labor and the hassle over teachers'salaries had impacts that outlasted the freeze.

21 See Table 8 for details.22 OEP Economic Stabilization Circular (ESC) 101, Sec. 602 (21).23 The price of a commodity was held to that charged for at least 10 percent of

transactions during the base period, whereas the rent on each dwelling unit wasfrozen 5eparately. See pp. 80-82, 91-92.

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The first opposition to the freeze on wages came from GovernorPreston Smith of Texas, who announced that, despite the freeze,130,000 State employees would get pay increases authorized forSeptember 1 and Texas teachers would receive their automatic in-creases. There was a question, according to the Governor, of"whether the President of the United States has the authority tooverrule our Texas laws." 24 His Attorney General ruled the payincreases illegal, however, and a strong plea for compliance wassent to the Governor by CLC Chairman Connally. The Texansthen deferred the pay increases and sought to have them authorizedby an exemption, but this request was denied. 25

Although this incident quickly blew over, it was a harbinger offurther problems. Opposition to the entire New Economic Policyfrom the AFL-CIO and its President, Mr. George Meany, wasimmediate and vociferous.26 Labor quickly concluded, however,that it could do little to influence the administration of Phase I."We're not advocating defiance," Meany told a news conference."We're just not cooperating. If they can put it over without ourcooperation, I guess they will." 27 Labor's influence was concen-trated on the Congress, which was preparing to extend the Eco-nomic Stabilization Act and to take action on other aspects of theNEP. As will be seen later in this section, labor achieved some ofits goals by this means.

The most serious opposition to the wage freeze in Phase I camefrom teachers. The National Education Association (NEA) issueda statement denouncing the application of the freeze to teachers.The American Federation of Teachers, an AFL-CIO union, tookthe same position. They felt the freeze order was discriminatoryto teachers because it coincided with a new school year, the onlytime most teachers get pay raises, and also because of the seasonalnature of teachers' employment.28

The policies on teachers' pay are discussed in Chapter IV andwill not be repeated here. The confusion on the part of teachers,the press, and the public was due largely to this chain of events:OEP guidance on August 26 appeared to be quite liberal; theNEA estimated that it would allow 80 percent of the teachers to

24 Quoted in New York Times, August 20, 1971, p. 1.25 See pp. 104-107 and Denton, Texas Record-Chronicle, August 23, 1971.* See pp. 144-145.27 New York Times, August 20, 1971, p. 1.28 New York Times, August 20, 1971. See also testimony of Donald E. Morrison,

President of NEA, October 5, 1971, in Economic Stabilization, Hearings before theHouse Committee on Banking and Currency, 92d Congress, 1st Sess. (Washington:Government Printing Office, 1971), pp. 173-198.

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get pay increases. Arnold Weber's press statement on September 3,however, put a narrow interpretation on the guidance and wasfollowed by estimates that only 20 percent would get increases.There was not, strictly speaking, any change in the regulations; butthere was a change in the rhetoric of Government spokesmen andin the interpretations appearing in the press. Guidance issued onSeptember 16 clarified the meaning of the regulations, but it wasimpossible then to overcome the teachers' feeling that the Govern-ment had altered its position and was discriminating against them.In a suit filed September 24, the NEA accused the Government ofmaking "vague, inconsistent, and contradictory rulings, interpreta-tions, and policy statements" and asked that CLC be preventedfrom blocking scheduled teacher salary increases.29 Noncomplianceon teachers' salaries was widespread and enduring.

The Government brought suit against the School Board ofJefferson Parish, Louisiana (on the west side of New Orleans) atthe end of September in an attempt to establish a legal precedentfor teacher pay compliance efforts. A pay increase of $400 a yearhad been authorized, effective July 1. Teachers in Louisiana areemployed on a continuing employment arrangement; they do notsign annual contracts. Many school employees, including someteachers, were working on a 12-month basis and had thus begunreceiving the increased pay before the freeze. Most of the teachers,however, began work on August 26 and received no pay duringthe base period. They were, however, "employed" during theperiod in that they could not be dismissed without cause, couldnot seek other jobs, and could not draw unemployment insurance.The suit thus pinpointed the question of whether a pay increaseauthorized for all teachers in a system was "in effect" during thebase period for teachers who were hired but not actually drawingPay-

Orleans Parish (largest in the New Orleans area) had originallycomplied with the freeze on teachers' pay, but its decision waschallenged in a suit filed in a State court by the Orleans Educators'Association. The Parish lost this suit on October 1 and proceededto grant the pay increase. The Federal Government then expandedits suit against Jefferson Parish to include Orleans. A decisionagainst the Government was given in the combined suit onOctober 8.

The Government had argued that only those teachers who had

29 NEA v. CLC et ah, filed September 24, 1971, in U.S. District Court, District ofColumbia.

129474-893 O - 72 - 10


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actually worked during the base period were eligible for the payincreases. But the court, noting that Economic Stabilization Regu-lation 1 allowed pay increases to remain in effect if they were"paid or received or in effect during the base period/' said thatthe salary increases in question were clearly "in effect" on July 1and thus should remain in effect during the freeze. The courtadmitted that some of OEP's Circulars narrowed the range ofallowable pay increases, but found these Circulars contradictoryand inconsistent. It concluded:

The Court takes notice that the Federal agencies responsible for this gar-gantuan task have been swamped with myriad requests for administrativedeterminations. . . . Conflicting guidelines are perhaps inevitable because of theimmediacy and urgency of the administrative inquiries. Nevertheless, the Courtcannot elevate to the level of enforceable law the inconsistent and contradictorydirectives provided by the various Circulars. Instead, the Court will adhere toRegulation No. 1 as properly interpretive of the Executive Order.30

The Government saw this loss as a serious blow to its stabilizationefforts and appealed the decision. Efforts to obtain compliance werepressed forward in other States, where laws and contract detailswere different.

Several surveys were taken to ascertain the extent of noncom-pliance on teachers' salaries. An October 2 report showed apparentnoncompliance by six southern States and 50 additional schooldistricts.31 A more systematic survey at the end of October showedthere was suspicion of noncompliance in 1,761 school districts.Almost all of these were concentrated in eight southern States plusCalifornia, Iowa, and West Virginia. It was reported at the sametime that 364 districts had rolled back previous pay increases.32

Further investigation of the 11 States with major complianceproblems produced the following results: Regional Directors con-sidered 584 districts in those States to be in violation and hadserious questions about more than 200 additional districts.33

The Government's second effort to resolve the teacher pay issuein court came on November 11 with a suit against the OklahomaCity School Board. Under Oklahoma's continuing contract law,the teachers were bound by their contracts from July 1 onward.

30 Opinion in United States v. Jefferson Parish School Board, U.S. District Court,E.D. Louisiana, October 8, 1971. Reprinted in Economic Controls: 90 Days: August16-November 13, 1971 (Chicago: Commerce Clearing House, 1971), pp. 9886-9891.

31 Memo, Avery E. Kolb to Lincoln, October 2, 1971, Subj: Regional Directors'Appraisal of School Salary Compliance Situation in Regions.

32 Memo, Kolb to Lincoln, October 29, 1971, Subj: Teachers' Pay Situation; MsgBravo 297, November 1, 1971. The eight southern States were Florida, Mississippi,North Carolina, South Carolina, Tennessee, Kentucky, Arkansas, and Louisiana.

33 Memo, Kolb to Lincoln, November 2, 1971, Subj: Regional Updating Reportson 11 States with Particular Problems in Teacher Pay Area.

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Employees on 11- and 12-month contracts were actually workingbefore August 15 and hence got raises, but those on 10-monthcontracts were not scheduled to begin work until August 23. Thelatter could not get the pay raise, according to the Government'sinterpretation of its regulations; but the School Board interpretedthe regulations its own way and granted the increases.

OEP and IRS officials worked vigorously throughout the freezeto obtain compliance on teachers' pay, and they were successful inmost cases. But there was still more noncompliance than in anyother segment of the economy, and the short duration of the freezedid not allow time to settle many cases by court action.

The problem was resolved in Congress. After a week of hearingson extension of the Economic Stabilization Act, the House Bank-ing and Currency Committee voted on November 4 to include inthe extension of the Act the requirement that most wage increasescovered by contracts made before the freeze should be paid retro-actively.34 The bill, also providing a 5.5 percent increase to Federalcivilian and military personnel, was signed into law on December22. The Pay Board's consequent regulation was explained asfollows:

In general, retroactive payment of salaries and wages, including fringebenefits, of no more than seven percent is permitted where increases were calledfor in employment agreements, or practices that were agreed to or were ineffect before the economic freeze was imposed on August 15, 1971, but wereprevented from being paid because of the freeze.

Required to grant pay increases retroactively regardless of the amount ofincreases are all employers who, before August 15, 1971, raised prices, increasedproductivity, raised taxes, made appropriations, or otherwise raised funds tocover pay hikes prevented by the freeze.35

This regulation rendered moot most pending litigation on wagesand salaries held up by the freeze, including the suit against theOklahoma City School Board. Table 9 above indicates that therewere 71 suits involving wages and salaries, and most of these werestill pending in court at the time of the Pay Board action.

Price Lists

The President's freeze order provided that "each person engagedin the business of selling or providing commodities or services shall

84 New York Times, November 5, 1971, p. 1. Later Senate action on this provisionsoftened the wording slightly but left it substantially intact. See CongressionalQuarterly Almanac, 1971, Vol. 27, pp. 459-471.

35 Pay Board Press Release, January 13, 1972; the regulation appeared in theFederal Register, January 27, 1972.

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maintain available for public inspection a record of highest pricesor rents charged for such or similar commodities or services duringthe 30-day period ending August 14, 1971." 36 While this appearedto be clear and precise, many questions quickly arose. For example,were merchants required to post lists of prices or merely to haverecord books available? Were merchants required to open con-fidential records to the public or only to Government inspectors?Were chain stores required to have records available at each outletor only in a central office?

Merchants were reluctant to incur the considerable expense ofpreparing and printing price lists. Consumer groups, on the otherhand, complained that they could not detect violations unless ceil-ing price information was readily available. The seller's obligationsremained unclear during the first part of the freeze, until clarifyingregulations were issued.

OEP moved in mid-September to tighten up the price list re-quirement. In reply to an inquiry from Mr. Ralph Nader, Directorof the Center for the Study of Responsive Law, Arnold Weber saidon September 16: "The retailer must maintain and have availablefor public inspection a list of his ceiling prices. The consumercan demand to see these ceiling price lists if he has a question." 37

This letter was the first official or quasi-official use of the term"price lists" and became the basis for new guidance issued by OEPon September 25 and October 4.38 The guidance provided thatsellers must have available at each place of sale "ceiling price lists"from which they would supply information to the public in re-sponse to specific requests.

An alternative method of complying with the price list require-ment was promulgated on October 14 and remained in force duringthe rest of the freeze period and into Phase II. This method con-sisted of the seller's posting large signs directing purchasers toCeiling Price Information Request Forms, which had to be avail-able in the store. The purchaser would indicate on the form thespecific item for which he wished to know the ceiling price, andwould receive an answer by mail within 48 hours.39

The guidance establishing the alternative method also set a dead-

36 Executive Order 11615, August 15, 1971, Sec. 1 (b) .^Ltr, Weber to Nader, September 16, 1971. The letter also responded to Nader's

inquiries about wage exemptions for low income people, appeal proceedings, dis-closure of CLC minutes, and possible consumer participation in policy formulation.

38 E S C 16, S e p t e m b e r 2 5 , 1971 , Sec . 701 ( 1 ) ; O E P P r e s s R e l e a s e 4 6 4 , O c t o b e r 4 ,1971. See also ESC 19, October 6, 1971, Sec. 402 (2) , and ESC 102, Sec. 402 (9).

39 OEP Press Release 471, October 14, 1971; ESC 20, October 15, 1971, Sec. 402;ESC 102, Sec. 402 (9,10).

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line of November 1 for the availability of price lists at each point ofsale. This requirement was later dropped,40 however, since thealternative method was working well and it was not clear what thePrice Commission would require for Phase II. Some retail associa-tions had insisted their members were supplying prices on anitem-by-item basis but that preparing special price lists would beprohibitively expensive.41

IRS made a nationwide survey during the first 4 days of Novem-ber to see how many businesses were providing ceiling priceinformation to customers or at least promised to have it by Novem-ber 5. It was found that 36 percent were not in compliance whenchecked, but most of those promised to comply by November 5.

TABLE 10.—Availability of Ceiling Price Information,November 1-5, 1971

Price lists available at point of sale 1171 46%Information available by mail within 48 hours 473 18%Promised to comply by November 5 847 33%No assurance of compliance 66 3%

Total stores checked 2557 100%Source: Msg Alfa 238, November 4, 1971.

Price Violations

It was not surprising that 75 percent of all complaints receivedconcerned prices, since people make dozens of retail purchases forevery one rent payment or wage adjustment. Complaints of priceviolations flowed in, ranging from the trivial to the extremelycomplex; the vast majority were promptly resolved by IRS agentseither because there was no violation or because the merchantquickly rolled back the price.

Consumers were often confused because of the many brands andsizes available or by special sale prices, and the formula for com-puting base prices was more complex than was generally realized.The difficulties consumers had in obtaining base price informationalso contributed to the large number of unfounded complaints.During the first half of the freeze, for instance, there were over athousand complaints about gasoline prices—more than on anyother item. Although a few of these were valid, most concerned

Press Release 26, October 27, 1971."New York Times, October 29, 1971, p. 1.

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price increases that had occurred just before the freeze and hencewere legal.42

An increase in the price of propane gas (a type of liquefiedPetroleum Gas, or LPG) also sparked numerous complaints andheated editorial comment. Ten companies located in Texas andOklahoma announced increases of one cent a gallon about October1. Since propane had been selling for 6 to 10 cents a gallon in thatmarket area, the percentage increase was considerable. The com-panies said their prices had regularly gone up in the fall, becauseof increased winter demand for fuel, and were therefore justified bythe seasonal price rule. The seasonal rule provided that, whereprices had shown "a large, distinct fluctuation at a specific, identi-fiable point in time" during each of the past 3 years, the pricecould be raised during the freeze to the price in effect during theprevious season.43

While it was true that propane prices had generally risen in thefall, the timing of these increases varied widely. From the winterof 1970-71 to the time of the freeze the prices had risen steadilyrather than fluctuated. The OEP General Counsel provided anopinion that the seasonal rule did not apply, and by October 22OEP's Dallas office and IRS agents in that area had obtained roll-backs from all 10 companies.44 This was the most significant pricerollback occurring during the freeze period, representing a savingto consumers of about $100 million a year.45

There were numerous complaints on increases in premiums forgroup medical insurance. The guidance on insurance allowedformula-based premiums to increase to reflect changes in actuarialfactors or cost increases that had occurred before the freeze, usingmethods of computation in use before the freeze. They did notallow premiums to increase to provide for future (projected) in-creases in hospital costs or doctors' fees.46 The Connecticut GeneralLife Insurance Company voluntarily rolled back rate increases inorder to comply with this policy.47 OEP's Kansas City office con-ducted lengthy investigations of premium increases in the Midwest,

42 See CLC Press Release 5, September 24, 1971, and New York Times, September21, 1971, p. 1.

43 ESC 101, Sec. 303.44 CLC Press Releases 23 and 24, October 20, 21, 1971; Memo, Bruce Marshall,

OEP Dallas, to Bruce Whelihan, OEP Washington, October 22, 1971, Subj: LPGPrice Increases.

45 Washington Post, October 18, 1971, p. B-13; Wall Street Journal October 22,1971, p. 2.

46 ESC 102, Sec. 407 (2).47 CLC Press Release 14, October 6, 1971.

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but the complexity of the factual situations in these cases preventedany resolution of the cases before the freeze ended.

As the freeze progressed, the Compliance Branch adopted moresystematic means to locate price violations. When the WholesalePrice Index or the Consumer Price Index showed price increaseson particular commodities, for instance, special checks were madeon those items.48

An interesting price case that eventually went to court was thatof Cincinnati Transit, Inc., a private local bus company. TheCincinnati Public Utilities Director had, on June 23, 1971, ap-proved certain reductions in scheduled service, which were to takeeffect on September 5. On the basis of an affidavit submitted bythe company, the OEP General Counsel initially ruled that theschedule reductions could be made without a fare reduction.Additional facts later submitted by the City and other interestedparties prompted a withdrawal of the earlier OEP ruling. OEP andIRS representatives were of the opinion that freeze regulationsrequired a fare reduction commensurate with the service reductionand suggested a 5-cent cut. The company contended that no farereduction was required, since the rider was getting the same serviceonce he was on the bus.49

Although there was nothing unique in the situation (the gradualerosion of local bus service has been a familiar phenomenon inmany American cities for the past 20 years), there was at least atechnical violation of freeze regulations. OEP ruled that it was aviolation; the company filed a suit to reverse OEP's ruling; and onNovember 15 it raised fares by 5 cents, apparently violating PhaseII regulations. The Government sued on December 17 regardingboth violations; this suit was settled out of court, with the courtapproving the stipulated judgment on May 9, 1972. CincinnatiTransit agreed to reduce fares for stated periods, thus in effectreturning the excess charges to its customers.50

Sporting Events

Price increases on tickets for sporting events became one of themajor bones of contention in the compliance area. Several pro-

48 See OEP Weekly Summary Report to CLC Chairman, November 6, 1971, p. 1.*9Ltr, Lawrence J. Kemper, IRS, Cincinnati, to John Simpson, Office of OEP

General Counsel, September 17, 1971, with attachments. For discussion of relevantpolicy, see pp. 8(M*2.

50 Interview with William C. McCorriston, Economic Stabilization Section, CivilDivision, Department of Justice, July 19, 1972.

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fessional and college football teams and some professional hockeyteams increased the prices of tickets for the season beginning inthe fall of 1971. These increases were usually announced duringthe preceding winter or spring, and many season tickets were soldduring the spring and summer. The advent of the freeze on August15 created unique problems of interpretation and enforcementwith respect to these tickets. CLC discussed the matter early inSeptember and ruled that admission prices for sporting events andother entertainments were frozen, and that those who had pur-chased tickets at higher prices should be reimbursed.51

This policy was clearly stated and firmly adhered to by thegovernment, but was not readily accepted by some of the athleticclubs. The Government policy was that, for regular season gamesplayed during the freeze period, admission prices could be nohigher than those charged for regular season games during the baseperiod. Most football teams had not begun their 1971 season priorto August 15, so their base period fell during the 1970 season.Teams that had increased prices for the fall 1971 season were thusrequired to roll them back to 1970 levels, and this applied even toseason tickets that had been sold long before August 15. TheGovernment took the position that the "transaction" was com-pleted only when the game was played, as this constituted deliveryof the "service" that had been contracted for in advance. Theteams in general took the position that, if the ticket had been paidfor and delivered before August 15, the transaction was then com-plete and could not be affected by the freeze announcement.

Several teams rolled back all price increases that had beenplanned for the 1971 season. Others complied to the extent thatthey rolled back prices on tickets actually sold after August 15.On tickets that had been sold in advance, however, there was amajor controversy that led to several court suits. A man who hadpurchased tickets for Atlanta Falcons games sued that team onSeptember 10 on behalf of all Falcons ticket holders; he hadpurchased four season tickets on June 4, 1971, for $7.50 per game,whereas the price the previous season had been $6.00 per game.

The Falcons sued the U.S. Government on September 25, seek-ing a declaratory judgment; and the Government filed a countersuit on September 27, challenging the price increase. In their suitthe Falcons stated they had sold 70 percent of their season ticketsbefore August 15 and had made business plans and financial com-

51 ESC 102, Sec. 403 (2); see also CLC News Release dated September 9, 1971,and SPG 3.0963, 3.0969, and 3.0996.

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mitments based on the increased revenue. They argued that thePresident did not intend for his Executive order to render illegalsales that antedated that order. The Falcons also pointed out thatCLC was allowing increases in tuition and room and board toremain in effect if they had been announced and deposits hadbeen made before August 15, although the "services" were actuallydelivered during the freeze period. They implied that the govern-ment was obliged to follow the same policy with regard to athletictickets.52

Long before this matter could be settled in court, four otherprofessional football teams and one university had sued the govern-ment over the ticket issue. One of these suits was brought by theMiami Dolphins, who had played "preseason" (exhibition) gameson August 7 and 13. Season tickets, of which 75 percent had beensold before the freeze began, included admission to these preseasongames. The Dolphins contended that these two games, having beenplayed during their base period, established the price level thatshould prevail during the freeze. The government's position wasthat preseason games differ substantially from regular games andcannot therefore be used to establish a base price.

The Dolphins suit also advanced several new arguments, includ-ing charges that the Economic Stabilization Act was unconstitu-tional and that OEP's order to make immediate cash refunds,without allowing the Dolphins any opportunity for a hearing,denied them equal protection of the laws and due process of law.53

In order to avoid multiplying lawsuits, OEP signed agreementswith other teams whose situations paralleled those of the Falconsor Dolphins to the effect that they would abide by the outcomeof the suits already pending in court. These teams placed moneyin escrow or filed letters of credit to provide for the reimbursementof ticket purchasers should that be necessary.

One of the suits on the ticket issue was brought against CLCby the University of Southern California. For the 1971 season, theuniversity had increased prices for reserved seats by 50 cents pergame and had sold over 125,000 season tickets before the freezebegan. When ordered to refund the increase, the university re-sponded by suing CLC. The court ruled in favor of the universityon May 12, 1972, saying in part:

52 On tuition policy, see p. 84.53 Joseph Robbie et al. (Miami Dolphins) v. John B. Connolly et al., in U.S.

District Court, S.D. Florida, October 6, 1971. The constitutional issues are discussedlater in this chapter.

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The fundamental legal issue is the meaning of the word "transactions" as it isused in the Executive Order and ensuing regulation. . . . No amount of in-terpretation or rationalization can remove the retroactive nature of the burdenthat the council here seeks to impose. . . . Nothing in the Executive Order orin Economic Stabilization Regulation No. 1 suggests restrictions on anything otherthan prospective charging and payment of prices.54

The Government appealed this suit to the Temporary EmergencyCourt of Appeals, the special appeals court set up to handle Eco-nomic Stabilization cases, and won this appeal on September 18,1972. The status of the other cases on ticket prices was still pendingat this writing.

A unique problem was presented by two teams that opened thefall 1971 season in new stadiums. The teams argued that they wereselling a "new product" featuring greater comfort and conveniencefor the spectator. One of these teams, the San Francisco Forty-Niners, compared its old stadium—wooden benches without backs,no parking facilities, inadequate restrooms—with its new situationin Candlestick Park, which had individual plastic seats and all thecomforts expected by the modern fan. The St. Louis Blues HockeyTeam similarly tried to justify price increases on the basis of im-provements made to its Arena. CLC ruled that use of new facilitiescould justify price increases but not improvements to existingfacilities.55

THE QUESTION OF CONSTITUTIONALITY

Many suits that sought to override the Government's freezepolicies or decisions charged that the Economic Stabilization Actof 1970 or some actions taken under it were unconstitutional. ByOctober 26, 24 suits had been filed challenging the legislation onconstitutional grounds.56 The two most common arguments werethat Congress had delegated law-making authority to the President,thus violating the constitutional separation of powers, and thatthe inadequacy of administrative and judicial review procedurescreated a situation in which people were denied their propertywithout due process of law. The latter charge, for instance, wasmade by some landlords who had been ordered to refund rentincreases even though no formal hearing had been held on thequestion of whether they had violated the law.

54 University of Southern California v. CLC, U.S. District Court for CentralCalifornia, May 12, 1972; reprinted in US. Law Week (Washington: Bureau ofNational Affairs) , May 23, 1972, pp. 1179, 2762-63.

55 ESC 102, Sec. 402 (6).56 New York Times, October 26, 1971, p. 66.

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Those who raised the constitutional question were, of course,primarily interested in obtaining a particular wage increase orother direct benefit. Nevertheless, the constitutional question wasof serious concern to Justice Department lawyers. Assistant At-torney General Gray admitted: "A lot of lawyers on the outside saythe statute is barren, that it's unconstitutional on its face." 57

The suit in which the constitutional issues were most fully airedwas that filed on September 10 by the Amalgamated Meat Cuttersand Butcher Workingmen, an AFL-CIO union. The suit soughtan injunction to require eight meat packing firms to grant a25-cent-an-hour wage increase to 50,000 workers. It asserted thewage increase was being withheld illegally, since both the Act andExecutive Order 11615 were unconstitutional. The complaint said:

The Act is an unconstitutional delegation of legislative power to the President,in violation of the Constitution, Article 1, Section 1. The Act empowers thePresident to impose wage and price controls when and as he sees fit, withoutany standards established by Congress to guide the President in deciding whethereconomic conditions warrant such action, or the timing of such action, or thenature and extent of such controls.58

The complainant also contended that Executive Order 11615 wasunconstitutional because "nothing in the Economic StabilizationAct of 1970 . . . empowers the President retroactively to deprivepersons of rights under existing contracts." 59

U.S. District Judge Aubrey E. Robinson, Jr., requested onSeptember 30 that a three-judge panel be named to hear the case.The panel's decision, written by its chairman, U.S. Circuit JudgeHarold Leventhal, found the Act and Executive order fully con-stitutional and therefore denied the union's motion.60

Judge Leventhal's opinion upheld the right of Congress to dele-gate wide authority provided that Congress exercised "the essentialsof the legislative function"—of determining the basic legislativepolicy and formulating a rule of conduct.

The key question is not answered by noting that the authority delegated isbroad, or broader than Congress might have selected if it had chosen to operate

57 Quoted in Business Week, October 23, 1971.58Amalgamated Meat Cutters and Butcher Workingmen v. Connally et al., filed

September 10, 1971, in U.S. District Court, District of Columbia, Count 1, Sec.13.a. Reprinted in Federal Controls, (Washington: Bureau of National Affairs),October 5, 1971.

68 Ibid., Count 1, Sec. 12.a.80 Opinion of special three-judge District Court of the District of Columbia,

rendered October 22, 1971. The other members of the panel were Judge Robinsonand U.S. District Judge Charles E. Richey. The opinion was printed in FederalControls, October 26, 1971, and in Economic Stabilization Legislation, Hearingsbefore Senate Committee on Banking, Housing, and Urban Affairs on S-2712, 92ndCongress, 1st Sess., November 1-5, 1971 (Washington: Government Printing Office,1971) , pp. 132-150.

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within a narrower range. The issue is whether the legislative description of thetask assigned sufficiently marks the field within which the Administrator is to actso that it may be known whether he had kept within it in compliance with thelegislative will.61

Leventhal held that the 1970 Act was sufficiently precise to fulfillthis requirement.

The court also held that review procedures were adequate. Anyperson charged with a violation could obtain judicial review byinserting a defense to the enforcement proceeding, the court said,adding, ". . . this provides ample judicial review for constitutionalpurposes/' The court also held that the Administrative ProceduresAct (APA) was definitely applicable to this statute, which meantany citizen could seek an injunction against actions of the Govern-ment agency, in this case CLC. One provision of the APA is thatpublic hearings be held in advance of rulemaking, but this re-quirement is waived when the agency finds "that notice and publicprocedure thereon are impracticable, unnecessary, or contrary tothe public interest." 62 Public hearings were not held on freezeregulations because of the time factor.

The court did not agree to the union's argument that a wagecontract made before the freeze was immune from the effects ofthe Executive order. This argument was advanced frequently byother Labor leaders, who charged that the President had no au-thority to invalidate existing contracts. In support of the Govern-ment's position, Leventhal cited a previous opinion, which stated:

Contracts, however express, cannot fetter the constitutional authority of theCongress. Contracts may create rights of property, but when contracts deal witha subject matter which lies within the control of the Congress, they have acongenital infirmity. Parties cannot remove their transactions from the reach ofdominant constitutional power by making contracts about them.68

Judge Leventhal's opinion thus resolved most doubts about theconstitutionality of the freeze and largely stopped any further dis-cussion of the topic. Although the opinion applied directly only toPhase I, the principles enunciated were applicable to Phase II andwere used in enforcing it. The opinion was thus of immense helpto those charged with enforcement, both before and after Novem-ber 13.64

61 Ibid., Sec. B.2, quoting the opinion in Yakus v. U.S., which sustained the grantof price fixing authority in the Emergency Price Control Act of 1942. (JudgeLeventhal was Assistant General Counsel for the OPA during World War II.)

62 Ibid. , Sec. B. 11.63 Norman v. B.&O. R.R. (1935) , cited in the Justice Department ' s response to

the Amalgamated suit, Federal Controls, October 5, 1971.64 Interview wi th W i l l i a m E. Ne l son , Apri l 21 , 1972.

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CONCLUSIONS

One conclusion that arises from this study of compliance andenforcement is that there is a tremendous reservoir of good willin the American people that can be tapped when pressing nationalneeds must be met. The general spirit of cooperation and supportwas reminiscent of historic crises in past decades and showed thatAmericans will pull together when convinced of the need toachieve common goals.

One must also conclude, in a more pragmatic vein, that more ex-tensive advance preparation of specific regulations would have beenof great benefit to the program. If the price list requirement, forinstance, had been spelled out clearly on the first day of the freeze,it would have relieved both merchants and consumers of muchanxiety and would have contributed to a greater coherence in thewhole price control program. Similarly, if the regulations on teach-ers' pay had been formulated in advance, they could have preventedthe uncertainty and bitterness that developed on this issue. Fewwould doubt, in fact, that every segment of the economy would beregulated more smoothly by the use of rules systematically preparedin advance than by those churned out "in the heat of battle"—aftera freeze is already in effect. The problem was and is that it is ex-tremely difficult to know well in advance what regulations would beappropriate for a given set of economic conditions.

A question frequently asked about the total enforcement effortwas: why did the Government end up prosecuting teachers, footballteams, and a few landlords when the major inflationary pressuresagainst which the freeze was aimed obviously lay elsewhere? Itseemed ironic that charges were pressed mainly against minor ele-ments of the national economy. This occurred largely because theleaders of major industries and unions, and of most smaller eco-nomic units as well, realized from the outset that they would haveto comply, and so they presented few enforcement problems. Afew major economic entities, such as the propane producers, didhave to be brought into line, but this was done in the realm of"voluntary" rather than enforced compliance.

The legal proceedings that were entered into, therefore, weredirected against the small remnant that felt it could successfullydefy the freeze. As Arnold Weber said in a review of the freeze,". . . the primary objective of the compliance program was not somuch to have a direct impact on the economic effectiveness of the

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freeze but to preserve the sense of equity and uniformity necessaryto maintain the underlying consensus." 65

This turn of events showed, among other things, the desirabilityof limiting an across-the-board freeze to as short a period as possi-ble. The problem with a sweeping economic control program isthat it catches in its net the millions of "little fish" as well as thebig ones, and if they are held too long the little fish begin to re-quire an undue amount of attention. The three-tier control systeminaugurated with Phase II 66 allowed the Government to concen-trate its efforts on the more significant economic entities. AsLincoln often noted, however, the circumstances prevailing duringthe freeze required the vigorous application of legal sanctionsagainst all violators in order to maintain broad public support forthe program.

66 Arnold R. Weber, "The 1971 Wage-Price Freeze and Incomes Policy," MonthlyLabor Review (U.S. Department of Labor), April 1972, pp. 18-21.

66 See p. 173.

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VII

Building Public Understanding

President Nixon emphasized in his August 15 address to theNation that the success of his program would depend on the co-operation of all the American people and on their willingness tosacrifice in the long-term public interest. OEP, as manager of thefreeze, recognized that an important part of its task was to developa wide-ranging information program that would secure the supportof the public, business, and labor through knowledge and under-standing.

OEP faced the problem of assuring support for a program thatwas unanticipated and that disrupted normal business practices ina peacetime economy. Fighting inflation is not ordinarily aglamorous or moving cause; for this freeze, there was no externalenemy threat against which to rally patriotic support. Yet the greatmass of citizens, recognizing inflation as a national disease, re-sponded positively to the Administration's request for support.OEP strove to sustain this support by keeping the public well in-formed and aware of tangible signs of the success of the program.

INITIAL RESPONSE TO THE FREEZE

The wage-price freeze had an immediate personal impact onalmost every adult American. The initial response was highlyfavorable. The President's dramatic move struck a responsivechord; "man-in-the-street" interviews following the August 15 an-nouncement of the New Economic Policy (NEP) found praise forthe President's courage and an enthusiastic determination to "pulltogether." A traditional American indicator of the public mood, thestock market, reflected this enthusiasm; the Dow Jones industrialaverage scored a record 32.93 point gain in a single day and endedthe week with a healthy 24.89 point increase.

Evidence of polls, borne out by mail received by the White

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House and OEP and by reports from Regional Offices, pointed tobroad support of the program by a majority of citizens. An earlyoutpouring of letters from teachers registering their oppositionconstituted the bulk of OEP's unfavorable mail.

The first reactions from industry were very favorable. Business-men eagerly anticipated a revival of consumer confidence andincreased sales as a result of the President's initiatives. W. P. Gul-lander, President of the National Association of Manufacturers,immediately declared: "The bold move taken by the President tostrengthen the American economy deserves the support and co-operation of all groups." Although his statement avoided completeendorsement, it seemed to reflect the sentiment of a broad spectrumof business.1 The U.S. Chamber of Commerce and other majorbusiness groups also endorsed the President's actions despite theirphilosophical and historical distaste for controls.

Organized labor was the source of the most vociferous protestsagainst the freeze. The Executive Committee of the AFL-CIO hadbeen on record since February 1966 as willing to cooperate witheconomic stabilization measures provided the restraints were equi-tably placed on all costs and incomes; it reiterated this position onAugust 9, 1971.2 However, to George Meany, President of AFL-CIO, the wage-price freeze did not meet labor's requirements. OnAugust 16, he labeled the freeze "patently discriminatory againstworking men and women." 3 At an emergency session, the AFL-CIO Executive Council formally proclaimed its opposition. TheCouncil declared its lack of faith in the ability of President Nixon"to successfully manage the economy for the benefit of the ma-jority of its citizens"; it called on Congress to assert control overthe economy, to provide an equitable, effective, and enforceableprogram. The Executive Council went on to state:

We will insist that controls on prices and wages be made equitable, and thatall other forms of income—profits, interest rates, executive compensation, expenseaccounts, the prices of stocks and bonds—be brought under equal restraints.4

Among major labor leaders, only Teamsters President Frank E.Fitzsimmons pledged to "cooperate fully" with the NEP, including

1 New York Times, August 17, 1971, p. 1.2 "The National Economy," Statement by the AFL-CIO Executive Council, August

9, 1971.3 Quoted in Newsweek, August 30, 1971.4 Statement Adopted by the AFL-CIO Executive Council (Washington: AFL-CIO) ,

August 19, 1971, pp. 6-7.

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the freeze. He did urge, however, correction of the "legislativeomission" of a freeze on profits, dividends, and interest.5

Despite the opposition of labor leaders, early Gallup polls in-dicated that a majority of union members supported the freeze. OnAugust 20, 65 percent of union families surveyed stated that theyfavored the President's program—as compared with 73 percent ofall families.0 Union leaders predicted that the attitude of workerswould shift when they personally felt the full impact of the freezeand its "discriminatory" aspects.

These attitudes were the backdrop against which the freezeadministrators had to conduct the program. The basic objective ofthe public information program was to elicit compliance from allthese sectors of the economy. But a further goal was to inspire andsustain positive support and assistance from the public.

FREEZE REQUIREMENTS AND PUBLIC INFORMATION

It was clear from the start of the freeze that its success wouldrest largely on an informed public. Given the nature of the 90-dayfreeze—the heavy dependence on voluntary compliance, the in-evitable inequities and hardships, and the psychological objectiveof a revival of public confidence—a solid and extensive publicinformation program was essential.

The strategy of the freeze was based on the premise that mostAmericans would obey a Presidential order, even one as disruptiveof normal life as the freeze, if their obligations were clearly ex-plained and if they believed the measures to be in the nationalinterest. The first responsibility of the public information program,therefore, was to educate; the second was to persuade. The pre-requisite to voluntary compliance was wide dissemination of in-formation on these new requirements of the Government. Inaddition, the public information program had to convince thoseamong the public who were adversely affected that their sacrificewas in a good cause and that, although it was impossible to avoidall inequities, the freeze was administered in as even-handed amanner as possible. Business and labor, the sectors which have themajor economic impact, also had to be convinced of the need for

5 Daily Report for Executives (Washington: Bureau of National Affairs), August19, 1971.

6 Gallup poll reported in Washington Post, August 29, 1971.

145474-893 O - 72 - 11



cooperation despite the suspension of their normal pricing andwage-bargaining practices.

For the first days after the announcement of the freeze, "con-vincing" was far less urgent than simply getting information tothe public; this basic problem preoccupied a large portion of OEPand detailed employees. Although the answers to many questionshad yet to be formulated, the Operations Center in the NationalOffice had a major telephone answering service in place from thefirst morning of the freeze. To meet the urgent demands of thepress, the Director and Deputy Director devoted much time toinformal interviews, though no formal press conference was held.In addition, the Director permitted the press to observe the activityof the Operations Center for the first few days. Because of theseefforts and the interest of the media, the news coverage of freezeoperations during the first week was thorough, lively, generallyfavorable, and effective in conveying to the public the impact ofthe freeze.7

The goal during the first weeks of the freeze, when publicenthusiasm was high, was to publicize the regulations through asmany channels as possible and to give quick, consistent responsesto questioners anxious to inform themselves. The task was largelyone of getting the word out fast enough to satisfy the virtuallyinsatiable information needs of the media and the public. Later,when the initial spontaneous support lessened under various eco-nomic pinches, OEP's public information program became morespecialized and focused on specific problem areas.

From the outset Lincoln was aware of the need for a formalstructure to meet the information requirement, and he took earlysteps to organize a public information network and program. Eachof the components of the information program, though of differentdegrees of sophistication and efficiency, had a special role. Directtelephone and letter contact with the public served to answerimmediate personal problems and to identify policy issues thathad to be resolved. The use of the mass media to spread guidanceforestalled many direct inquiries. Contact with trade and pro-fessional associations and State and local government units providedopportunities to channel pertinent information to special interestgroups. All of these information routes were used to provide timelyand detailed information to the public and to gain their coopera-

7 Public knowledge of the freeze was measured by Sindlinger & Co. to be 96percent; the same firm found only 94 percent who were aware of the first moon trip.Albert E. Sindlinger, quoted in Business Week, August 28, 1971.

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tion through understanding.8 The National Office shared with theRegional Offices the operational responsibility for these activities,while retaining the overall responsibility for management andcoordination.

PUBLIC INFORMATION NETWORK

National Office Organization

The basic strategy for public information activities was de-veloped by the Director's office in coordination with the Cost ofLiving Council (CLC). OEP's public information networkcentered around a greatly expanded Office of Congressional andPublic Affairs (CPA), under the direction of Mr. David J. Patti-son.9 CPA assumed the major responsibility for building broadunderstanding and popular support. This office coordinated thedissemination of information through the Regional Offices, whereparticular local problems could be squarely faced.

CPA was OEP's primary point of contact with Congress andState and local government associations, with business and pro-fessional associations, and with the public and press at the nationallevel. A specially established Speakers' Bureau within CPA co-ordinated the considerable effort made to go out to the questioner'sown ground. On August 27, when the field network was function-ing efficiently and the flow of calls coming into the National Officediminished, CPA took over from the Operations Center the burdenof answering calls from the public. It had already been handling allcongressional calls. The calls from the public ranged from under100 to about 500 a day during the remainder of the freeze.

A Correspondence Section, separate from CPA, was establishedto answer or forward for specialized handling all written inquiriesfrom the public and Members of Congress. This office, under Mr.Douglas M. Johnston, processed about 27,000 letters and telegramsduring the 3 months.10 The Section was taken over by Mr. William

8 Official policy dissemination within the CLC-OEP-IRS-ASCS chain is discussedon pp. 78-79.

9 Lt. Col. William Snyder, an economist on the Army War College faculty,served as Pattison's executive officer for the first 2 weeks; he was succeeded by Col:Howard Steele, who remained for the rest of the freeze. Mr. Bruce Whelihan camefrom the White House staff to be Special Assistant to the Director for Public Infor-mation, dealing primarily with the news media.

10 The general public was told to direct questions to the Regional Offices; how-ever, in the interests of speed and practicality, those communications arrivingdirectly in the National Office were handled there. See pp. 66-70 for a discussionof the handling of inquiries.

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A. Fletcher toward the end of the freeze when Johnston moved toCLC.

The National Office developed and coordinated the total infor-mation program, while leaving most direct public contact to thelocal level. In the National Office, the time-consuming "walk-ins"by reporters, lobbyists, and anxious citizens were soon diverted toa Press Reception Room. Here, an average of 100 persons a dayfound OEP releases and circulars, plus CLC and Treasury Depart-ment releases provided as an added service. This procedure provedhelpful in informing both the man in the street and the specializedinquirer.

Field Network

The OEP Regional Offices, which were the front line in theinteraction with the public, labored under special handicaps incoping with the initial flood of inquiries. The Regions were inthe spotlight before they had settled the matters of new office space,furniture, telephones, and personnel; calls began pouring intosome Regional Offices before they had time to brief new employeeson what few answers were available. The problem of accommodat-ing the huge number of information requests remained seriousthroughout most of the freeze. To help meet the public's demands,the 360 local IRS offices and 2,819 ASCS county offices were drawninto the information business. The total OEP-IRS-ASCS informa-tion system received approximately one million inquiries duringthe wage-price freeze. In general, IRS handled most of the tele-phone inquiries, as well as routine correspondence.11

The exact configuration of the information network varied fromRegion to Region. The IRS and OEP regional structures did notcoincide, and each OEP Regional Public Information Officer(PIO) had to establish his own working relationships with theIRS and ASCS personnel. In addition, all OEP Regional Officesbut one had to borrow PIO's from other agencies, which figuredas a potential handicap. Given the diversity and breadth of thefield network, guidance from the National Office was clearly neededto build a good team that would be well coordinated with Wash-ington.

Deputy Director Trent, who had special responsibility for thecoordination of field activities, devoted a major part of his energiesto orchestrating and monitoring the regional public information

31 Calls to ASCS constituted only about 3 percent of the total inquiries received.

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effort. His goal was to present the program to the country as uni-formly as possible in order to establish a broad base of publicunderstanding and support. Trent and CPA invested considerableeffort from the outset to make sure that the Regions built positiveprograms and that these were moving well. They sought first tosecure experienced PIO's for each Region and then to formulate acentralized plan to assist the Regional PIO's.

The paramount importance of the Regional Offices' informationactivities received formal recognition in an August 22 meeting inthe National Office with regional representatives. Trent stressedthat each Regional Office was first of all an information office, inthe broadest sense. He noted that continuing contact with peoplewould be very important for determining what questions neededattention. Pattison reiterated that information flow was of firstpriority in the Regions, as it was in Washington. He promisedthat guidance for the Regional PIO's would be given high priorityby the National Office.12

By the end of the first week of the freeze, CPA had sent the OEPRegional PIO's brief preliminary instructions, which included arequirement to establish contact with the IRS and ASCS PIO's.13

OEP and IRS soon worked out a division of responsibilities toguide their respective field offices. CPA, charged with the overallsupervision of the program, provided guidance to the OEP Re-gional PIO's, who coordinated their activities with the IRS Re-gional PIO's. These PIO's were considered to be members of aFederal team; press conferences were held jointly by OEP and IRS,when possible, to display the team. The programs formulated bythis team were implemented on the IRS District level. Here, theIRS PIO was responsible for disseminating information throughhis local media contacts. Detailed, policy-related questions beyondhis scope were referred to the IRS or OEP Regional PIO.14

Subsequent guidance on public information activity in the fieldfocused on specific areas of concern. The Regional Offices, forexample, would receive draft press releases or other suggestions forpublicity to meet some pressing issue. The guidance was somewhatsporadic, often verbal and improvised; the National Office neverformulated broad guidelines for the daily operations of the Re-

12 Memorandum for the Record, August 25, 1971, Subj: Regional RepresentativesMeeting, August 22, 1971, Morning and Afternoon Sessions.

"Memo, David J. Pattison, Assistant to the Director for CPA, to OEP RegionalDirectors for Regional PIO's, August 22, 1971, Subj: Economic Stabilization Informa-tion Activity.

"Msg Alpha 9, August 27, 1971, Subj: Federal Economic Stabilization PublicInformation Activity.

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gional public information activity. The absence of generalized,formal instructions was attributed to the speed of events and to awidespread belief that decisions on local problems could best bemade in the field. The variations in the style of Regional Directors,in the working relationships established with IRS, and in localproblems seemed to argue for the more flexible, problem-orientedapproach.

The public information task as envisaged for Washington andthe Regions was discussed in depth in a conference for RegionalPIO's held in Washington on September 17-18. The meeting per-mitted a mutual exchange of problems, many of which were solvedon the spot. Lincoln, Trent, General Counsel Bennett, and thehead of the Office of Exceptions and Exemptions, ChristopherNorred, provided the PIO's with the background and rationale forcertain important policy decisions. The discussion centered onareas of particular public concern and on ways to reduce confusionand promote understanding of the program.

PUBLIC INFORMATION ACTIVITIES

Relations with the News Media

In its attempt to reach the widest possible audience, OEP reliedvery heavily on the assistance of the news media. Both workedtoward the goal of an informed public. The early guidelines madegood copy and were given wide publicity; the reporting was ac-curate to an extraordinary degree, and those few cases of factualerror were easily corrected. The first 2 weeks of the freeze receivedconsiderable attention under the impetus of the public's desire toinform itself and the eagerness of the press to accommodate thisdesire. Analytical stories appeared in the second week.

National news magazines and newspapers planning feature storiescontinued to request interviews throughout the freeze. The teachersalary problem was featured in press stories for the first 2 monthsof the freeze; other compliance cases, particularly as related toticket sales for sports events, also attracted wide attention. How-ever, the PIO's experienced considerable difficulty in maintainingthe interest of the media in routine policy announcements. Afterthe first month, the attention of the public and the press focusedon speculation about Phase II developments and only returned tothe freeze when sparked by major events or controversial cases.

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Reporters remained very interested in data on violations—of theceiling price list requirement and of propane gas and grocery prices,for example—and reacted unhappily to the decision of CLC andOEP not to release the name of a suspected violator before a suithad been filed. In support of its decision to withhold names, OEPpointed to the fact that a high percentage of violations was dueto innocent misunderstanding and that many unfounded com-plaints were filed with the IRS. Moreover, there was the possibilityof endangering legal proceedings by making a public accusationbefore a suit was filed.15

Lincoln did recognize the public's interest in compliance casesand urged the Regional Offices to give special attention to thissubject. "The purpose of the publicity," he said, "should be todeter violators, to add to the flow of information to those who areunknowingly engaged in violations, and to indicate the positiveoperation of the program." 16 The Regional Directors were in-structed, however, to limit their comments in the compliance areato regional events, refer to general trends and approximate figuresonly, and avoid any detail on the status of a specific complaint,violation, or investigation. The National Office provided examplesof compliance cases for use in regional press releases and speakingengagements.17

Press Releases.—The President's Economic Stabilization Programwas run by a coalition of executive departments and agencies, eachwith its own public information staff. The small staff of the Costof Living Council coordinated these independent voices to makesure the program was being described consistently.

The freeze was presented to the public primarily by the publicaffairs staffs of OEP and CLC, which worked through press re-leases, interviews, and TV appearances. With OEP catapulted intoits freeze role and CLC organizing from base zero, no formalallocation of duties was made at the outset. The public affairs staffsof the two agencies soon established personal liaison, and by theend of August the CLC staff had assumed overall responsibilityfor the coordination of releases.

In general, OEP publicized the administrative decisions andrules, and CLC handled releases covering major policy develop-ments and groundbreaking events, such as the first suit or ex-emption. There was natural overlap in responsibilities, and the

15 See p. 126.16 Memo, Lincoln to Regional Directors, August 23, 1971."Message No. 120, August 30, 1971, Subj: Public Presentations and Appearances.

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occasional duplication caused concern about possible public con-fusion over which agency was responsible for particular actions.18

A modus operandi gradually developed between the two publicaffairs offices. OEP public information officers cleared their releasesthrough their CLC counterparts, most often by telephone. If CLCvetoed a release, it did so in order to study further the policy to beannounced or to issue the release itself for the greater impact. Inthese cases, since CLC had no field apparatus, OEP would in-corporate the same information in its own releases for the cus-tomary local distribution by its Regional Offices.

Of the 89 releases issued by CPA during the 90-day freeze, 28dealt with administrative decisions and policy rulings. These werethe heart of the public information program. Lincoln often ex-pressed his belief that in a crash program spreading the basicinformation comes before any storytelling. There were only fourreleases that might be categorized as "human interest" or featurestories and twice that number consisting of statistical compilationsdealing with the response to the freeze.

Brief descriptions of the exemptions denied were catalogued in26 releases. These advertised the firm policy on exemptions andconveyed the message that the freeze was being applied stringentlybut in an even-handed manner. Three releases described the ex-emptions granted. Finally, 20 releases featured examples of volun-tary compliance, court suits, and other actions on complaints; thesereleases effectively emphasized the voluntary compliance notedthroughout the country as well as the "teeth" ready to meet non-compliance.

While OEP had impelling reasons for its choice of subjects forits releases, the PIO's noted a basic difficulty: the reluctance ofnational papers to pick up OEP's releases. In an effort to avoidpublic relations gimmicks, the drafters of the releases had giventhem a dry, "regulatory" tone. The almost total absence of anec-dotes likely to be picked up by the wire services made the publicinformation job more difficult. Announcements that only clarifiedand reclarified policies lacked the punch to move editors to en-thusiastic coverage.

The New York Times and the Wall Street Journal did a par-ticularly thorough job of printing the policy Questions andAnswers (Q&A's). Most newspapers, accustomed to the annualIRS Taxpayer column, ran the Q&A's in the same manner, but

18 See, for example, OEP Press Release 442, and CLC Press Release 6, September24, 1971.

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only during the first weeks. When the freeze became "old news/'big-city newspaper coverage of new guidelines became moresketchy. Releases of statistics or exemption denials got even lesscoverage in the major papers.

On the local level, many newspapers only intermittently receivedAssociated Press and United Press International coverage (oftencondensed) of freeze information released in Washington. In addi-tion, the local press often ignored releases that were not writtento encompass local statistics and human interest items in a livelier,more newsworthy style than that of the National Office releases.Local papers, however, were far more likely than national papersto print the details of the releases if the information were "local-ized" by the Regional Offices. Consequently, the localized releasebecame OEP's principal medium for getting its message to thegeneral public.

The Regional Offices issued 472 releases on freeze matters. TheNational Office in its directives to the Regions had stressed fromthe start of the freeze the important role of the press release inthe Regional PIO's program. Lincoln, on September 8, asked hisRegional Directors to continue using press releases originating inthe National Office for localized distribution within each Region.The Regional Offices could reissue the full text as sent by CPA;however, Lincoln noted that editing to reflect specialized concernsof the Regions or communities might result in more compre-hensive coverage by the regional and local media.19 Again onOctober 4 he stressed "the urgency of the timely publication anddissemination of Regional press releases." 20

There were almost as many methods to meet the requirementfor the dissemination of local news as there were Regions. Closecoordination between OEP and IRS proved the most commonarrangement, and probably the most efficient. Most OEP RegionalPIO's relied heavily on the IRS network to distribute the releasesto local papers; some also asked IRS to rewrite the releases; otherOEP PIO's preferred to work alone with their own mailing lists;and many worked out variations of these methods. On the peripherywere the ASCS county offices, which received OEP releases fordistribution to weekly newspapers and local radio stations.

Coverage by the News Media.—The final measure of the successof the public information effort was the extent of the public'sawareness and support of the program. Regional Directors without

10Msg Bravo 157, September 8, 1971.^M Bravo 230, October 4, 1971.

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exception voiced the conviction that the public was well informedof the broad outlines of the freeze, and they attributed this to thegenerally good coverage by the media.

The major national newspapers gave wide circulation to theearly rulings and other major policy developments. Those business-men and lawyers who needed complete and accurate accounts ofthe regulations resorted to the Federal Register, their associationnewsletters, and private news services. Two such news services,Bureau of National Affairs and Commerce Clearing House, ex-tended their regular coverage of economic developments in theGovernment to report in depth on freeze regulations and policydevelopments. Each service increased its already broad circulationin business, labor, legal, and governmental circles. Furthermore,each published a new report specifically designed to cover thefreeze, thereby attracting additional subscribers.

The depth and kind of news coverage in the mass media variedconsiderably. Geography, size and philosophy of the newspaper,the editor's whims, the availability of alternate sources of informa-tion, and the PIO's efforts—all influenced the sort of coverage thefreeze received. Southern and Midwestern papers, for example,were more likely to cover the freeze sympathetically than those inthe Northeast. In the Kansas City Region, the broadcasters andnewspaper reporters held a special news conference with the Re-gional Director and PIO to pledge their support to OEP and itsefforts.

Major announcements made in Washington were generally wellcovered in the larger cities through the wire services, the networks,and Washington correspondents. As a consequence, big-city mediatended to ignore regional releases of regulations and the moreprosaic decisions. This required the Regional PIO to focus on localproblems for the media of small towns and communities. EveryPIO discovered that press releases on local matters, plus personalcontacts and efficient use of IRS resources, would secure goodcoverage.

While more suited to impressionistic reporting, the electronicmedia did help to convey the basic freeze information to their wideaudiences. The television footage of OEP in the bustle of its firstdays brought the impact of the freeze to millions and gave theminformation on where to turn for help. CLC members and staffershandled most of the later Washington press conferences and guestappearances on network panels. Encouraged by the National Office,the Regional Offices made extensive use of television and radio.

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Through frequent appearances on talk shows, panels, and pressconferences, Regional Directors and their PIO's sought to buildrecognition in their new locations and to spread awareness thatOEP and IRS were available to answer individual questions.21

In sum, the national and regional coverage by the news mediawas generally gratifying. The Government and the media weretrying together, in a wide variety of ways, to inform the public asthoroughly as possible. Most important, the public wanted to beinformed. As a result, the general public was surprisingly wellaware of the broad aspects of the freeze, and special-interest groupswere very well informed.

The Speakers' Program

Requests for speakers to address civic, trade, and professionalorganizations began to arrive in the OEP National and RegionalOffices at the onset of the freeze. Speaking engagements receivedhigh priority in the information program. Speakers at meetings oflarge, nationally prominent associations had the opportunity topresent specialized information directly applicable to pressing needsof the audience. Speakers could thus provide more detailed ex-planations, beyond those commonly published in the regular newsmedia, which the associations could distribute to their membersby way of circulars and newsletters. The Speakers' Program alsooffered a means of feeding back into the policy planning processany critical problems brought up by these audiences.

The Director and Deputy Director filled the first requests frommajor national associations, but special machinery was needed tohandle the increasing volume of requests. Early in September, theDirector established a Speakers' Bureau within CPA to prepareguidelines and sample speeches for the use of speakers, to maintaina list of approved speakers, and to schedule requests according togiven priorities. OEP Regional Offices advised the National Officeof requests from the most significant groups within the Regionand honored other requests, as appropriate, without referral to theiNational Office.22

Most of the speeches were given to trade and professional as-

21 The Boston Region handled 44 TV, radio, and newspaper interviews and talk-show appearances the first week of the freeze. In the Kansas City Region, theRegional Director gave 37 radio and eight television interviews, and four newsconferences in three major cities between August 23 and 27.

22 Memo, Lincoln to All OEP Personnel, September 13, 1971, Subj: Speakers'Bureau.

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sociations, retail federations, and chambers of commerce. TheSpeakers' Bureau generally booked requests only from major na-tional and regional organizations; those organizations serving onlya city or a State were referred to the appropriate Regional Office.By the end of the freeze, the Speakers' Bureau had filled 95 speak-ing engagements, broken down as follows: OEP National Officerepresentatives (including staff detailed from other agencies), 68;OEP Regional Office representatives, 15; National Defense Execu-tives Reserve (NDER) consultants, 5; other Federal agency rep-resentatives, 7.

On September 16, Lincoln requested OEP's 137 NDER economicstabilization consultants and advisory committee members to acceptspeaking engagements on invitation by OEP National and RegionalOffices.23 OEP Regional Directors were encouraged to extend simi-lar invitations to members of their Regional Economic Stabiliza-tion Committees. All participants were given a "speakers' kit" ofsuggested speeches.

The short duration of the freeze made extensive use of theExecutive Reservists difficult. The Speakers' Bureau hesitated todisrupt the Reservists' busy schedules or to request much traveling.Moreover, it was difficult to keep the Reservists abreast of rapidlymultiplying regulations. In these circumstances, the Reservistswould be forced to stick to the formal speech format, when mostaudiences preferred a question-and-answer session.

The National Office called upon only five Reservists to fill en-gagements during the freeze. At the Regional level, only the Bos-ton, New York, and Chicago offices used their Executive Reservistsas speakers. Most Regional Offices consulted with individual Re-servists for feedback on business and public reactions. RegionalOffices which used the Reservists most easily and profitably werethose with long-standing habits of communication and personalfriendships between the Regional Director and the Reservists.

The Regional Offices filled a total of 639 requests for speakers.The number per Region varied widely—from 16 in Dallas to 111in San Francisco. The highly industrial and commercial Regionsgenerally received more requests for speakers. Some RegionalDirectors and PIO's preferred to substitute for speeches directmailings to special-interest groups, numerous press releases, andbroad media coverage of difficult matters. In addition, geographical

28 OEP's stand-by plans for economic mobilization had included provisions forthe full activation of the NDER. For a discussion of the decision to use theReservists only as speakers and as consultants on the public and business mood,see pp. 42-43.

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size and degree of IRS participation in the Speakers' Programaccounted for some of the differences in the number of speechesgiven. In some large Regions, IRS relieved OEP of obligations inareas far from the Regional Office.

The Regional Directors made the large majority of speakingappearances themselves, and in some Regions these filled most oftheir time. Some found the demands so heavy that careful screen-ing of requests became necessary; in one Region it was decidedthat no group would be addressed unless at least 100 people werepresent.24 About 95 percent of the engagements were by request;in a few cases, OEP offered speakers to meet some special problem.

The Speakers' Program on both the National and Regionallevels was highly successful in communicating information to keygroups. There were problems, of course, in the execution of theprogram. The press of time and lack of detailed information forthe Q&A sessions were handicaps in the beginning. In addition,the speakers most in demand were key staff members whose pre-occupation with the immediate problems of freeze managementprevented them from filling more than a few very important en-gagements. Toward mid-October, the focus of attention moved toPhase II, and speakers had little information to satisfy the curiosityand quiet the anxieties of the public. OEP representatives wereinstructed not to answer questions or speculate on postfreezepolicies, which were beyond OEP's responsibilities. No otheragency was yet equipped to handle the questions. During thetransition period, the Speakers' Bureau actively discouraged re-quests and referred as many as possible to Phase II agencies.

Trade Associations and the Spread of Information

OEP's emphasis on informing the major trade associations borefruit when these organizations took over, in large part, the re-sponsibilities of disseminating information through the businessworld.

Many Washington-based associations sent representatives toOEP's Press Reception Room daily to pick up the latest OEP andCLC releases. The information garnered from these releases waspublished in association newsletters and bulletins. The GroceryManufacturers of America established a "freeze line," a 3-minutetelephone message, which member companies could tap to receive

24 After-Action Report to OEP Historian from Region 1, Boston, November 30,1971.

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current information 24 hours a day. Lincoln was impressed withthe "freeze line" and directed CPA to call it to the attention ofother major associations.

On September 2, OEP provided answers to 89 of a total of 94special questions submitted by the U.S. Chamber of Commerce onbehalf of its members; the other questions needed CLC resolution.The Chamber then included these questions and answers in acompilation of 250 Q&A's it distributed to over 1,300 trade as-sociations and businesses. An OEP press release featured the goodexample set by the Chamber of Commerce and the GroceryManufacturers of America in helping to disseminate information."I am certain," Lincoln noted, "that the tremendous job beingdone by these associations has helped us greatly in achieving volun-tary compliance with the President's program." 25

An October 7 press release further saluted 79 State and nationaltrade associations whose members had adopted an anti-inflationemblem. The poster was distributed by associations affiliated withthe American Retail Federation, the National Association of RetailDruggists, and the National Restaurant Association—a total repre-sentation of nearly one million retail establishments nationwide.Lincoln viewed the adoption of this emblem as "another welcomeexample of voluntary public support of the President's driveagainst inflation." 26

OEP encouraged major business associations and organizationsof associations to pass along freeze information to their memberorganizations. Toward this end, OEP circulated useful ideas asthey were developed by each group and responded to offers ofassistance by other organizations. Selected guidelines also went outto a few specialized magazines and information offices for thebenefit of their clientele. In addition, with the assistance of theDepartment of Commerce's Office of Business Services, the Directorsent a letter on November 9 to 123 retail associations asking themto remind their members of the ceiling price list requirements.

On certain occasions, the flow of information was reversed andindustry supplied the necessary facts to the freeze planners andadministrators. Representatives of several major corporations andbusiness associations met with the Director or his representativesto discuss policies as they applied to their industry and to suggestadjustments to fit the practicalities of implementation. Two pro-posals which became the basis for official policy changes involved

25 OEP Press Release 437, undated.26 OEP Press Release 451, October 7, 1971.

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modifications in the requirement to record the import surchargeand in the obligation to post ceiling price lists. Feedback fromspeeches before associations also went into the formulation ofpolicy. The rules on new products and seasonality, for example,were shaped in part by the information obtained through suchcontacts.27 The insights of several industry groups were also con-sidered in Phase II planning.

Many businesses and municipalities, when unhappy with par-ticular rulings or denied an exemption, requested special hearingsto present their cases in person. The Director or Deputy Directorgranted a few requests of major importance, and lawyers in theGeneral Counsel's office met fairly frequently with those havingspecial legal problems. In a few cases, Pattison met with the peti-tioner and accepted a written exposition of his problem for proc-essing through the prescribed channels. But the majority of thehundreds of requests for an audience were denied, because ad-ministrators' time was short and written requests were preferredto facilitate careful replies.

Coordination with State and Local Governments

When given operational responsibility for the freeze, OEP usedits established contacts with State and local government officials toobtain their support for and active involvement in the EconomicStabilization Program. Within OEP, the Regional Directors havethe principal responsibility for liaison with State and local officials;CPA coordinates with the State and local government associations,which are based in New York or Washington. Therefore, at theoutset of the freeze, the Regional Directors moved immediatelyto meet with the Governors in their Regions; each Governor wasasked to appoint a personal representatives for regular liaison. TheGovernors and their designees communicated to OEP the prob-lems encountered by State and local officials and their reading ofpublic reaction to the freeze.

In order to inform the Governors promptly and thoroughly ofrelevant policy developments, OEP provided them with the Stabili-zation Program Guidelines and sent them and their State AttorneysGeneral all other pertinent policy announcements. Messages to theGovernors' offices from the National Office were usually relayedthrough the communications network operated by the Army forthe Office of Civil Defense (since redesignated Defense Civil

27 Interview with Darrell M. Trent, Deputy Director, February 15, 1972.

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Preparedness Agency). In congressional testimony, Deputy DirectorTrent noted the importance of this network:

This communications system was of great help in delivering messages to theGovernors during the 90-day freeze when timely receipt of information fromWashington was of significant importance.28

In addition, CPA coordinated with the National Governors' Con-ference to take advantage of its communications channels; theGovernors' Bulletin, its weekly publication, carried to all Gover-nors the CLC Q&A's and other information of interest to Stateofficials.

Some Regional Offices were successful in actively involving theGovernors' offices in the flow of information to the public. TheSeattle Region, during the early days of the freeze, channeled in-formation to the Oregon public through the Governor's office,maintaining daily contact to provide advice and answer questions.The link worked well but was no longer needed when IRS joinedthe network.

The State of California performed another sort of service forOEP, thanks to contacts made during the rail strike crisis earlierin the summer. Its Office of Emergency Services coordinated allrequests for information from State agencies and employees. OEPalso worked closely with the State Chamber of Commerce, whichkept OEP informed of activities and attitudes within the State.Finally, the State Attorney General and State Superintendent ofSchools sent a joint letter to all county and district school super-intendents proclaiming support for the freeze and asking for theircooperation to make it work.

The Regional Directors worked closely with the mayors of majorcities. Joint news conferences were frequent in the early days ofthe freeze, and in some cases close coordination and positive as-sistance extended throughout the freeze. In New York City, forexample, a liaison task force set up by the Mayor's office stayed inalmost daily communication with the Regional Office.

The National Office used the U.S. Conference of Mayors as itspoint of contact with the mayors. This group, together with theNational League of Cities, publicized CLC and OEP policy pro-nouncements in newsletters to the mayors and managers of theirmember cities and the executive directors of State municipalleagues. Other national associations of local governments also gave

^Testimony by Darrell M. Trent, Deputy Director of OEP, before the HouseArmed Services Committee, Subcommittee on Civil Defense, December 9, 1971.

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regular coverage to stabilization guidelines in their publications,thus easing OEP's burden of disseminating information.

On September 21, Lincoln briefed the heads of the Washingtonoffices of the six principal organizations of State and local officials.29

The briefing gave Lincoln an opportunity to assure continuedrapport with these organizations, to acquaint them with OEP'sstabilization role, and to discuss their problems regarding Phase I.30

Throughout the freeze, the associations of State and local govern-ment officials stressed their desire to participate in the developmentof policy for Phase II. Despite the strong support of many Gover-nors, mayors, and State legislators, as well as of the associations,there was wide recognition that State and local governments hadparticular problems that would need priority attention upon termi-nation of the freeze.

Congressional Relations

The President's announcement of a wage-price freeze was greetedby statements of general support from most congressional leaders.The National Journal noted that "the program has won a sufficientdegree of public support to make an open display of partisanpolitics dangerous." 31 House Speaker Carl Albert urged Demo-cratic cooperation:

The revitalization of our national economy must be our paramount domesticobjective. So vital is that objective that all considerations of partisan politicaladvantage must be scrupulously eschewed.32

Members of Congress were, of course, greatly interested in spe-cific freeze policies of concern to their constituents. OEP greatlyexpanded its congressional liaison function in order to respondto the inquiries and referrals. Telephone inquiries from con-gressional offices ranged from 40 to 200 a day, placing heavydemands on CPA's small staff. The highest volume of calls wasreceived in late August, but there were many peaks as new issuesarose. The Correspondence Section handled more than 3,000 con-gressional letters and referrals. These also came in waves. Thesingle largest issue was the teacher salary question, but a consider-

29 These groups were the National Association of Counties, National League ofCities, U.S. Conference of Mayors, International City Management Association,Council of State Governments, and National Governors' Conference.

30 OEP Press Release 432, September 21, 1971.31 "Congress to Sweeten Tax Plan," National Journal, September 18, 1971.32 Ibid. There was, however, serious opposition in Congress to some aspects of

the New Economic Policy, in particular the tax measures and the shape of thePhase II controls.

161474-893 O - 72 - 12



able percentage of the congressional mail referred to requests forexemptions.

In addition to responding to direct requests from Congress, OEPkept Members of Congress and their staffs informed of policydevelopments in the Economic Stabilization Program. Lincoln, onSeptember 1, participated in the initial Administration briefing ofCongress. Pattison spoke by invitation to the Administrative As-sistants to Republican Members of the House of Representatives.Beginning with an August 19 package of press releases and Ques-tions and Answers, CPA dispatched materials to Members ofCongress on an almost daily basis. It apprised all Members of therole of IRS and ASCS field offices in handling calls from the publicand solicited their assistance in making this known to their con-stituencies. On the particularly volatile teacher salary issue, OEPon September 16 furnished definitive guidance to all Members ofCongress for use in answering inquiries. Thus, an attempt wasmade not only to keep the Congress informed but also to use thischannel as a way of reaching a wider audience.

Delays in obtaining substantive answers to specific queries attimes proved irritating to Members of Congress. Many answerssimply were not available for the first few weeks, and even laterCLC took a long time to resolve some complex issues. Most Mem-bers of Congress were in favor of the freeze, but some were criticalof the paucity of information on the status of requests for exemp-tions, of Phase II plans, and of other issues. In most cases, however,dissatisfaction ceased when adequate information became available.

Congressional staffs commented on the relatively low volume ofmail they had received on Phase I. In a letter to OEP in mid-September, House Republican Conference Committee ChairmanJohn B. Anderson (R.-Ill.) observed: "The lack of complaints toour offices certainly shows how effective OEP's operation has beenas well as how well the public had accepted the President's pro-gram." 33

RESPONDING TO PUBLIC CONCERNS

The primary purpose of OEP public information efforts was toinform the public about freeze policies and activities. Distributionof basic information was an essential part of the administrative taskand was continued throughout the freeze with little change in aims

33 Quoted in OEP Weekly Summary Report to CLC Chairman, October 2, 1971.

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or strategy. There was another aspect of dealing with the public,however, which sought to respond to changes in the public moodor to varying conditions. Through letters and telegrams fromthe public, Regional reports, and a daily news summary preparedby CPA for the executive staff, OEP kept itself informed of theways different segments of the public were reacting to the freeze.It tailored some public affairs activities to these reactions in orderto maximize support and counter public criticism.

The initial, generally positive response to the freeze discussedearlier in this chapter became more varied as the freeze continued.Business leaders were the most constantly favorable supporters ofthe freeze. Representatives of business indicated in congressionaltestimony and in responses to polls that their support was moti-vated by concern over high materials costs, soaring interest rates,consumer reluctance to spend, and particularly by the high cost oflabor. Most businessmen were hoping that the inflationary psy-chology would be broken and consumer confidence restored by theEconomic Stabilization Program. Indeed, retail trade picked upnoticeably after the imposition of the freeze.34

A majority of the public similarly welcomed the freeze as apromising solution to the commonly recognized menace of infla-tion. OEP's weekly reports to the CLC Chairman regularly notedthat nationwide public opinion polls indicated continued publicacceptance of the freeze. One typical survey showed 73 percentpublic support in August and 65 percent in September; the figuresfor union families were 65 and 54 percent respectively.35 Yet thesame polls showed that some serious reservations about the equita-bleness of the freeze had developed among some segments of thepopulation, even among those who continued to assert generalsupport for the program.

Most small businessmen and landlords complied with the freeze,usually without significant financial hardship. The criticism thatdid arise from this sector came from those who were more seriouslyaffected by the freeze, applied for an exemption, and saw it denied.Charges of "inflexibility" and a "doctrinaire approach" were re-ceived as a result of OEP's policy of allowing very few exemptions.

Criticism also arose from wage-earners who had lost a scheduled

34 See Nation's Business, October 1971 and April 1972, for Chamber of Commercesurveys of executives; U.S. News & World Report, September 20, 1971 for a surveyof retailers; Testimony of W. P. Gullander, President of NAM, September 22, 1971,before the Joint Economic Committee, in The President's New Economic Program,Hearings, Part 4. (Washington: Government Printing Office, 1971) , pp. 668-695.

35 See OEP Weekly Summary Reports to CLC Chairman, October 9 and October16, 1971; also Gallup polls reported in Newsweek, October 11, 1971.

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pay increase. To most working people of modest income, "infla-tion" meant rising prices, and "fighting inflation" therefore meantstopping price increases. Pay increases, on the other hand, wereseen as the just rewards of greater proficiency and longevity ofservice. Wage and salary earners thus greeted enthusiastically thefreeze on prices and rents, but many of those directly affectedreacted to the freeze on pay with suspicion and in some cases withbitter criticism. Exacerbating the situation was the fact that paylevels were easily controlled by employers, while monitoring priceswas a difficult and uncertain undertaking. The Government'sefforts at price controls proved to be an area of considerable fric-tion and skepticism as the suspicion that prices were creeping upbecame widespread.36 Consumer groups and newsmen led the attackon the alleged laxity in enforcement. Their suspicions were in-creased by the difficulty in getting information from retailers ontheir ceiling prices and by OEP's policy of confidentiality regard-ing the names of suspected violators and of those who compliedvoluntarily when confronted by IRS.

The most open opposition and defiance came from labor leadersand teachers, who focused their attacks on the alleged inequity ofthe freeze's impact. Organized labor, decrying the exclusion ofprofits, interest rates, and dividends from control, claimed that bigbusiness, banks, and major stockholders were reinforcing theiralready favored position, while the poor, city and State govern-ments, and Federal workers paid for this "bonanza for business."Congressional hearings provided the forum throughout Septemberand October for the labor leaders' denunciation of the freeze andits effect on working people, the "chief sacrificial lambs." 37 How-ever, George Meany, President of the AFL-CIO, realistically de-scribed his organization's operational position as noncooperationrather than outright defiance.38

The question of whether or not union rank-and-file sided withunion leaders was hotly debated but never settled definitely. Asindicated above, the majority of union families expressed support

38 A survey requested by CLC and conducted by the Census Bureau from Septem-ber 24 to October 2 found that 60 percent of the national sampling of 2,216 personsfelt the freeze had stopped wage increases, while only 33 percent said it had stoppedprice increases. Cited in article by Michael C. Jensen in New York Times, October15, 1971.

37 Leonard Woodcock, in testimony October 6, 1971, before the House Bankingand Currency Committee, in Economic Stabilization, Hearings. (Washington: Gov-ernment Printing Office, 1971) , p. 219; see also other testimony before this Com-mittee and hearings of the Joint Economic Committee and the House Ways andMeans Committee.

38Daily Report for Executives (Washington: Bureau of National Affairs), August19, 1971.

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for the freeze, but various polls seemed to indicate that workersgenerally had doubts about the equitableness of the freeze and itseffectiveness in controlling inflation. Workers, already disgruntledby the loss of pay or stalled contract negotiations, were furtherirritated by the spreading belief that business was profiting unjustlyfrom the program.39

Teachers voiced strong dissatisfaction over their loss of scheduledpay increases; teachers' salaries proved the single most troublesomeproblem in all the Regions throughout the first half of the freeze.Many teachers felt that their unique contractual situation justifieda general exemption from the freeze and therefore that the rulingsin their case were discriminatory and unduly harsh. This negativeresponse was aggravated by the confusion that arose over the earlyguidance in this area. The result was widespread noncomplianceby teachers and an outburst of public sympathy toward them.40

Public information activities were geared to maintaining thegeneral public support at a high level and to winning back thosegroups whose support was wavering. In many cases, all that wasneeded was to clarify the guidance in a particular area to end thefrustration of the confused. This approach was used, for instance,to minimize the opposition of teachers. Earlier confusion waslargely cleared up by the issuance of definitive guidance on Sep-tember 16. As this was disseminated through the mass media anddirectly to public officials, the attitude of teachers changed fromantagonism to a generally resigned acceptance of the situation.41

A strengthened public information effort of persuasion and ex-planation was directed against the charges of inequity and thesuspicions of widespread price violations. The Administration, ormore specifically CLC and OEP, sought to convince the doubtfulof two major points: that the freeze was necessary and that everyeffort was being made to keep it stringent, consistent, and reason-able. The President in his August 15 television address stressed thefirst point; he conveyed to millions the seriousness of the infla-tionary situation and the need for the freeze. Members of CLCand other Administration spokesmen continued to emphasize theexistence of a national crisis. Addressing themselves to corporationsand other large economic entities, as well as to the average Ameri-can, they worked to foster a mood of ideological support conducive

39 The Census Bureau survey cited above indicated that 62 percent of thosequestioned felt that "working people, union members, wage-earners, either blueor white collar" were not benefiting from the freeze. See also Gallup polls inNewsweek, October 11, 1971; Harris poll in Washington Post, October 11, 1971.

40 Weekly Report from Region 6, Dallas, Texas, September 10, 1971.41 See pp. 89-91 and 128-131 for a full discussion.

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to the revival of a healthy business atmosphere and to a willingnessto comply even to the extent of personal disadvantage.

OEP's task was largely one of sustaining a more pragmatic typeof support, or obedience to the regulations regardless of one's per-sonal feelings on the NEP or specifically on the freeze. To obtaincooperation from the general public and specialized sectors, includ-ing the union rank-and-file, OEP concentrated on publicizing itsconsistent and impartial administration and its success in con-trolling prices and preventing loopholes.

OEP conveyed its message through press releases, speeches, andresponses to inquiries. To those who complained of a lost wageincrease or a denied exemption request, the reply was that every-one else in a similar situation was being treated in the same man-ner. OEP admitted that the impact of the freeze was arbitrary, thatsome by a simple chance of timing were hurt more than others.It repeatedly stressed, however, that no favoritism or leniency wasbeing shown, even to such popular groups as teachers, professionalfootball teams, and the Girl Scouts. The constant emphasis in pressreleases on the overwhelming number of exemptions denied, aswell as their variety, conveyed to those who might otherwise havecomplained of their own hardships that many others were sufferingat least as much as they were.

To deal with public suspicions of price violations, potentiallyfatal to the delicate fabric of public support and voluntary com-pliance, OEP constantly reiterated in public statements that a highdegree of compliance was being achieved, and it offered as proofthe results of spot checks made by IRS. By accenting the theme ofthe fine response of the American people, the Government hopedto convince the skeptical and the potential violators that theyshould join in the majority reaction. OEP's policy of confidentialityin compliance cases kept CPA from satisfying the curiosity of re-porters and from calming consumers' fears that retailers wereviolating the freeze with impunity. As a substitute for releasingnames of violators, OEP gave wide publicity to general descriptionsof cases resolved by voluntary compliance.

While in practice OEP and CLC relied heavily on voluntarycompliance for the success of the freeze, a visible program of en-forcement was used to bolster public confidence in the effective-ness of the freeze administration. With the help of IRS and theDepartment of Justice, OEP intensified its actions against violatorsin the latter part of September to refute the doubters. And thetightened requirements on ceiling price lists (discussed in Chapter

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VI) were a direct result of an OEP-CLC desire to end consumers'feelings of suspicion and helplessness by giving them a tool formonitoring retail prices.

OEP's relations with most business leaders and associations wereon the whole amiable. Information was communicated efficientlyto individual businesses through trade association newsletters andspeeches by OEP representatives; conferences with various OEPofficials provided a way for business leaders to explain their prob-lems and needs for Phase II. Their tendency to wait until Phase IIrequirements were better known before investing in new equip-ment was largely beyond OEP's ability to affect. As for organizedlabor, OEP concentrated on winning the support of union rank-and-file; the approach differed little from that used to win generalpublic support. While labor leaders remained adamant in theiropposition, they were more concerned with influencing Phase IIlegislation and policy than with changing Phase I administrativedecisions.

The reservations and skeptical attitudes found among the gen-eral public indicated that many were waiting to see how the wholeNEP would work out before giving it an unqualified endorsement.These reservations did not, however, have much effect on the gen-erally satisfactory picture of cooperation and compliance.

The support shown for the freeze reflected the willingness ofAmericans to give Government initiatives a trial if the situationseems to call for it. But in addition, the support demonstrated thesuccess of the Administration, and most directly of OEP, in build-ing public understanding through a program emphasizing broaddissemination and explanation of information. The assistance givento OEP by the media and trade and professional associations,coupled with the public's own vital interest in the program, con-tributed significantly to the goal of an informed and cooperativepublic.

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VIII

Planning for the Postfreeze Period

LOOKING BEYOND THE FREEZE

What Comes Next?

From the outset of the freeze the Cost of Living Council hadresponsibility for determining the actions that would have to betaken after the 90 days. Dr. Herbert Stein of the Council ofEconomic Advisers headed a task force which set out promptly toconsider this matter. Administration plans called for consultationswith industry, organized labor, consumer groups, and other in-terested parties on future courses of action. About two months afterthe beginning of the freeze, some time in October, would comefinal decisions on transition and on the strategy, organizations, andprograms to be used after November 13.

The freeze was still in its early stages when the OEP Nationaland Regional Offices began receiving queries concerning the Ad-ministration's plans for "Phase IF'—the period that would followthe 90-day freeze. Clearly the American economy could not longfunction efficiently within the straitjacket of a wage-price freeze.But it was equally clear, as Secretaries Connally and Stans indi-cated in late August, that some curbs would be needed to restraininflationary pressures beyond the 90-day period. The positive effectsof the freeze would surely be lost if it were to be lifted withoutsome mechanism to hold wage and price increases within acceptablelimits.

The general feeling among the public was that longer-term re-straints would be needed if a wave of pent-up inflation was not towash across the country with the lifting of the freeze. As the ad-ministrator of the freeze, OEP Director Lincoln was in a goodposition to sense this sentiment. In his September 8 address beforethe National Association of Food Chains, Lincoln left no room fordoubt as to his feeling about the postfreeze challenge and the alter-natives for the Nation:

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PLANNING FOR POSTFREEZE PERIOD

. . . There will be a Phase II which of course can be another return to thecannibalistic wage, price, rent situation we had pre-freeze, or on the other handan extension of the current freeze—or it can be any of a large variety of optionsin between. . . .

If the freeze period were followed by an inflationary bubble, it would be asaddening outcome for the great effort all of us are engaged in. . . .

We must think of how to stop cancelling our great technological assets throughincreases in other costs which place us at a disadvantage in trade with othercountries and in trade with our own domestic consumers. We should thinkabout how to pace increases in wages, prices, and rents with equivalent gains inproductivity in order that we may travel on a steady upward economic path andavoid the debilitating inflation we have been experiencing.1

As was indicated earlier, President Nixon, in an address before ajoint session of the Congress on September 9th, ruled out a returnto the status quo ante. The freeze would end as scheduled, hepromised, but he would take "all the steps needed" to prevent anew surge of runaway inflation. Nixon announced that he wouldsoon begin consultations with representatives of industry, labor,agriculture, and the Congress in preparation for setting his post-freeze course. Some system of wage and price stabilization, thePresident said, would emerge from these discussions. He was notready at that point to describe the system nor to forecast its dura-tion, though he pledged that it would be temporary.2

At a press conference the following week the President set forthhis "tentative conclusions" with regard to the direction of theAdministration's thinking about Phase II:

. . . First, there will be a strong, effective follow-up program. The Americanpeople overwhelmingly support the wage-price freeze. . . . They don't want tohave a freeze followed by a thaw where you can get stuck in the mud. . . .

Phase II will be strong. It will be effective. . . . [It] will restrain wages andprices in major industries.

Second, it will require the cooperation of labor and management.But third, and this is vitally important, it will have teeth in it. You cannot

have jawboning that is effective without teeth.3

Thus it seemed clear that there would be no immediate return tothe prefreeze situation. Nor would there be imposed the all-pervasive controls used in World War II or the Korean War. ThePresident had in mind a program that would lie somewhere be-tween these extremes.

By then, though the point of final decision had yet to be reached,the Stein group was well along in formulating the philosophy and

1 Remarks before the National Association of Food Chains, September 8, 1971.2 A New Prosperity Without War and Without Inflation, Message from the Presi-

dent of the United States Concerning His Economic Policies, House Doc. No. 92-162,92nd Cong., 1st Sess., September 9, 1971.

3 Press Conference No. 19 of the President of the United States, September 16,1971.

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broad outlines of the Phase II program. Goals would be sufficientlyoptimistic to generate confidence and to discipline the administra-tors of wage and price policies, but not so optimistic as to be un-attainable. The program would be of sufficient scope to have thedesired effects, but at the same time the Administration wouldseek to minimize the buildup of bureaucracy and undue inter-ference with the economy. Further, the Phase II program would becomprehensive, but the governing standards and procedures wouldprovide for greater flexibility and equity than was possible duringthe 90-day freeze. Phase II, like the freeze, would depend heavilyfor its success on voluntary cooperation of the great majority ofthe people, with the government ready to impose sanctions onthose few who would not comply.

OEP Inputs to Phase II Planning

The substantive details of CLC's planning for Phase II and theevents surrounding the Administration's decisions on the organiza-tion and strategy that finally surfaced lie beyond the scope of thishistory. It is relevant, however, to highlight some of the ways inwhich the OEP Director as a member of CLC and several membersof his staff contributed to the planning process.

Members of CLC and other top government officials consultedactively with representatives of various sectors of the economic com-munity to determine their views concerning appropriate policiesand procedures to maintain wage and price stability.4 The taskwas informally split up among CLC members.5 OEP consultationsembraced the oil and energy (including power) industries, whole-sale and retail associations, the fiber box industry, State and localgovernment organizations, and several other segments of the eco-nomy.6 The meetings brought out the primary concerns of theseeconomic sectors regarding Phase II and their suggestions onarrangements and methods of control. The information gleaned

4Ltr, Weber to Eugene A. Kenney, President, American Retail Federation,August 27, 1971; Weber, Memorandum to All Department and Agency Heads,September 22, 1971.

5 Lincoln, Note to Harry B. Yoshpe, February 8, 1972.6 Lincoln, Memorandum for Weber, October 4, 1971, Subj: Your memorandum

of September 22, 1971 re consultations with various segments of the economy rePhase II.

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from these consultations was analyzed to highlight problems thathad important implications for Phase II.7

At the OEP staff level, William C. Truppner, Assistant Directorfor Resource Analysis, presented to Lincoln and the CLC staff ideasand proposals for consideration by those responsible for puttingtogether the postfreeze program. Along with general thoughts onthe administration of a postfreeze control system, Truppner setforth specific suggestions for the control of "key" firms in "key" in-dustries, control by "self-authorization," practicable patterns of or-ganization and staffing, and the application of analytical techniquesfor assessing the inflationary impacts of proposed price and wageincreases and for the selection of industries to be decontrolled.8

In addition to this analytical and computational support, theCLC staff received support from the Economic Stabilization Di-vision in OEP headquarters. In accordance with instructions fromLincoln, the major thrust of the division's work throughout thefreeze was to help CLC's planning and analysis staff to developconcepts for Phase II.9 The division made available to the CLCstaff many papers on organizational concepts and operating meth-ods based on its experience with contingency planning.10

In response to varying CLC scenarios for Phase II, the divisioncame up with alternative concepts and systems of control. Amongthe division's inputs were proposed structures and operating pro-

7 See Memoranda for the Record by L. D. Olvey, G. L. Butler, R. E. Plett andothers in Lincoln File—Wage-Price Ceiling—1971 Meetings with Industries and As-sociations; Michael M. Tansey, Memorandum for Lincoln, September 17, 1971, Subj:Industry by Industry Summary of the Effects of the Freeze; OEP Press Release 432,September 21, 1971.

8See Memoranda, Truppner to Lincoln, September 14, 1971, Subj: Some Noteson the Stabilization Program After 11/12/71 (Draft No. 2); Truppner to CharlesH. Sevin, CLC Plans and Analysis, September 23, 1971, Subj: Operating Conceptand Data Base Requirements and Sources for Postfreeze Stabilization Control System(SCS) ; Truppner to Lincoln, October 15, 1971, Subj: Assessing Inflationary Impact

of Wage Settlements and Price Increases, and attachment; Truppner to Lincoln,October 27, 1971, Subj: Inflationary Impact Criteria for Selective Industry andCompany Coverage Under Phase II Control System; Truppner to Lincoln, December2, 1971, Subj: Selective, Time-Phased Decontrol Procedure, and attached memoran-dum from Lester Tepper, Consultant, Resource Analysis, to Truppner, same dateand subject.

9 At the onset of the freeze, the Economic Stabilization Division was under thejurisdiction of Eugene J. Quindlen, Assistant Director for Government Preparedness.Mr. Leonard Skubal, the division director, had previously retired from governmentservice, but continued as a consultant to help until September 1st. It was anticipatedthat this planning assignment to the division would require analytical support. Asan interim measure, therefore, Lincoln assigned the division to Mr. Truppner, anddesignated Francis J. Russo acting chief of the division. See Memo, Lincoln to AllOEP Personnel, September 3, 1971; Skubal, "Critique of OEP's Role and Performancein the Economic Stabilization Program of the New Economic Policy," January 1972.

wRusso, Memorandum for the Record. November 29, 1971, Subj: Partial list ofstabilization concepts and standby programs supplied to the Program and AnalysisDivision of the CLC (Sept. thru Nov. 14) .

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from these consultations was analyzed to highlight problems thathad important implications for Phase II.7

At the OEP staff level, William C. Truppner, Assistant Directorfor Resource Analysis, presented to Lincoln and the CLC staff ideasand proposals for consideration by those responsible for puttingtogether the postfreeze program. Along with general thoughts onthe administration of a postfreeze control system, Truppner setforth specific suggestions for the control of "key" firms in "key" in-dustries, control by "self-authorization," practicable patterns of or-ganization and staffing, and the application of analytical techniquesfor assessing the inflationary impacts of proposed price and wageincreases and for the selection of industries to be decontrolled.8

In addition to this analytical and computational support, theCLC staff received support from the Economic Stabilization Di-vision in OEP headquarters. In accordance with instructions fromLincoln, the major thrust of the division's work throughout thefreeze was to help CLC's planning and analysis staff to developconcepts for Phase II.9 The division made available to the CLCstaff many papers on organizational concepts and operating meth-ods based on its experience with contingency planning.10

In response to varying CLC scenarios for Phase II, the divisioncame up with alternative concepts and systems of control. Amongthe division's inputs were proposed structures and operating pro-

7 See Memoranda for the Record by L. D. Olvey, G. L. Butler, R. E. Plett andothers in Lincoln File—Wage-Price Ceiling—1971 Meetings with Industries and As-sociations; Michael M. Tansey, Memorandum for Lincoln, September 17, 1971, Subj:Industry by Industry Summary of the Effects of the Freeze; OEP Press Release 432,September 21, 1971.

8See Memoranda, Truppner to Lincoln, September 14, 1971, Subj: Some Noteson the Stabilization Program After 11/12/71 (Draft No. 2); Truppner to CharlesH. Sevin, CLC Plans and Analysis, September 23, 1971, Subj: Operating Conceptand Data Base Requirements and Sources for Postfreeze Stabilization Control System(SCS) ; Truppner to Lincoln, October 15, 1971, Subj: Assessing Inflationary Impactof Wage Settlements and Price Increases, and attachment; Truppner to Lincoln,October 27, 1971, Subj: Inflationary Impact Criteria for Selective Industry andCompany Coverage Under Phase II Control System; Truppner to Lincoln, December2, 1971, Subj: Selective, Time-Phased Decontrol Procedure, and attached memoran-dum from Lester Tepper, Consultant, Resource Analysis, to Truppner, same dateand subject.

6 At the onset of the freeze, the Economic Stabilization Division was under thejurisdiction of Eugene J. Quindlen, Assistant Director for Government Preparedness.Mr. Leonard Skubal, the division director, had previously retired from governmentservice, but continued as a consultant to help until September 1st. It was anticipatedthat this planning assignment to the division would require analytical support. Asan interim measure, therefore, Lincoln assigned the division to Mr. Truppner, anddesignated Francis J. Russo acting chief of the division. See Memo, Lincoln to AllOEP Personnel, September 3, 1971; Skubal, "Critique of OEP's Role and Performancein the Economic Stabilization Program of the New Economic Policy," January 1972.

10 Russo, Memorandum for the Record. November 29, 1971, Subj: Partial list ofstabilization concepts and standby programs supplied to the Program and AnalysisDivision of the CLC (Sept. thru Nov. 14) .

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cedures for the projected wage and price bodies, position paperson industry-wide problems with suggested solutions, postfreezeexceptions and definitions, various pricing techniques, industryreporting requirements, drafts of regulations, and lists of industryadvisory committees and consultants working with OEP in stabiliza-tion planning. Follow-on meetings were held with the CLC staff,and the division also participated in the Director's discussions withindustry representatives to elicit their views on Phase II.11

The Postfreeze Program

On October 7 the President and CLC unveiled the goals,strategy, and structure of the postfreeze program.12 The Administra-tion set down twin goals for the program: (1) to reduce the rateof inflation to between 2 and 3 percent annually by the end of1972—about half the prefreeze rate—and (2) to eliminate "in-flationary expectations/'

No time limit was set for the program. It would be terminatedas soon as possible, but not until a reasonable degree of continuingprice stability was assured. Some products and services were to beexempted outright, and controls over particular economic sectorswould be removed or relaxed when feasible. To ensure victory inhis fight against inflation, President Nixon asked Congress for aone year extension of the Economic Stabilization Act of 1970,which was due to expire April 30, 1972. He also asked for standby

u See, e.g., Memoranda, Russo to Lloyd Eno, Resource Analysis Office, September9 and 22, 1971, Subj: Economic Stabilization Division—Current Operations; Russoto Louis Neeb, Policy and Guidance Liaison, October 20, 1971, Subj: Comments onPost-Freeze Exceptions and Definitions; Russo to Edward R. Saunders, Jr., DeputyAssistant Director for Resource Evaluation, November 4, 1971, Subj: Rent Stabiliza-tion—Phase II; Russo to Saunders, November 8, 1971, Subj: Improved Definition andRequired Adjustment for Early Attention of Price Commission; Enclosure toMemo, Truppner to Laurent Morin, Planning Review Office, November 16, 1971,Subj: After-Action Reports on OEP's Role in the Wage-Price Freeze; Skubal,"Critique of OEP's Role and Performance in the Economic Stabilization Programof the New Economic Policy," January 1972.

12 The discussion which follows is based essentially on the following: The Presi-dent's speech, "The Continuing Fight Against Inflation," October 7, 1971, WhiteHouse release transmitted to the OEP Regional Offices by Msg Alfa 171; "Back-ground Paper on Post-Freeze Economic Stabilization Program," transmitted to OEPRegional Directors on a "personal priority" basis by Msg Alfa 168, October 7, 1971;Executive Order No. 11627, October 15, 1971, "Further Providing for the Stabilizationof the Economy"; White House Fact Sheet, October 15, 1971; "Statement by DonaldRumsfeld, Director, CLC, November 10, 1971, CLC News Release transmitted to OEPRegional Offices by Msg Alfa 256; and Economic Report of the President Transmittedto the Congress January 1972, together with the Annual Report of the Council ofEconomic Advisers (Washington: Government Printing Office, 1972), particularly pp.82-95. (Hereinafter cited as CEA Annual Report)

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authority to control interest rates and dividends, although he hopedvoluntary restraint would suffice.13

While the program covered almost the entire economy, specialattention would be focused on major industries and unions. CLCdecided on a three-tier structuring of economic units for purposesof prenotification, reporting, and monitoring of price and wageincreases as follows:

TABLE 11.—Required Reporting of Price and Wage Increases

Price increases Wage increasesTier Action required (size of firm) (number of workers)

Affecting 5,000 ormore workers (10 per-cent of all employees).

(a) Prenotification of PriceCommission or PayBoard (increase to beeffective with approvalof Commission orBoard) .

(b) Tier I firms to submitquarterly price, costand profits reports toPrice Commission.

Sales of $100 millionand over (1570 firmswith 45 percent ofall sales) .

II (a) Report to Price Com-mission or Pay Board.

(b) Tier II firms to submitquarterly price, costand profits report toPrice Commission.

Sales of $50 millionto $100 million (1,000firms with 5 percentof all sales).

Affecting 1,000 to5,000 workers (7 per-cent of all employees).

Ill No reports (but in-creases to be made onlyin accordance withPrice Commission andPay Board regulationsand to be subject tomonitoring and spotchecks).

Sales of less than $50million (10 millionenterprises with 50percent of all sales).

Affecting less than1,000 workers (83 per-cent of all employees).

13 Legislation enacted December 22, 1972 extended the stabilization authority toApril 1973. Extension of this authority, the Council of Economic Advisers laternoted, "provides sufficient continuity and duration of the stabilization program topermit it to succeed." Some of the amendments voted by Congress, however, werenot requested by the Administration, and these held out the prospect of adding tothe complexities of program execution (see CEA Annual Report, p. 95) . The pro-visions which the Administration opposed included requirements that (a) scheduledwage increases be honored, retroactively if deferred by the freeze, unless they wereunreasonably inconsistent with established stabilization guidelines, and in any casesif prices or taxes had been raised or other provisions made to finance the increases;(b) the chairmen of the Pay Board and Price Commission be confirmed by the

Senate and the two bodies operate by majority rule; (c) interest rates be stabilizedwhenever wage and price authority was used, except when the President determinedthat economic conditions did not require control over interest; and (d) Federalemployees' pay be increased by up to 5.5 percent at the beginning of 1972, insteadof at mid-year, as the President had proposed (see 1971 Congressional QuarterlyAlmanac, p. 31.)

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PLANNING FOR POSTFREE1E PERIOD

As in the case of the freeze, the President sought to avoid a bigbureaucracy to administer the Phase II program. "Stabilizationmust be made to work," he told the Nation on October 7, "not byan army of bureaucrats, but by an army of patriotic citizens inevery walk of life." The program again would he based largely onvoluntary restraint. Nonetheless, the President said: "If there areany who try to take advantage of the patriotic cooperation of theirfellow Americans, I can assure you that the government must beand will be prepared to act against them." u

The administrative machinery for Phase II of necessity was morecomplex than the freeze structure.15 The Cost of Living Councilwas to have overall responsibility, as it did during the freeze. Itwould serve as a policy review group to assure that actions anddecisions of the postfreeze bodies were "of such a pattern and im-pact" as to achieve the President's objective of cutting inflation inhalf by the end of 1972. As a concession to organized labor, whosecooperation was essential in the fight on inflation, the President onOctober 11 approved a statement that CLC would not veto de-cisions on individual cases by the two new and primary bodies, thePay Board and Price Commission.16

CLC would, however, monitor, evaluate and coordinate thepolicy and conduct of the postfreeze agencies. It would providelogistic support to these agencies; recommend enforcement pro-ceedings; and initially determine, with the advice of the agencies,the extent to which various elements of the economy were to becovered by controls. Donald Rumsfeld, Counsellor to the Presidentand former head of the Office of Economic Opportunity, wasdesignated as Director of CLC.17

The development of guidelines and standards to attain the goalof the Phase II program fell to two new bodies—the Pay Boardand the Price Commission. The Pay Board would be tripartite,with five members each from labor, business, and the public; thechairman would be drawn from the public members. The Boardwould establish standards and make generally applicable decisions,

14 "The Continuing Fight Against Inflation," October 7, 1971.15 The postfreeze organization is depicted in Figure 7.16 White House summary statement on the respective roles of CLC, Pay Board

and Price Commission, with the President's "O.K." and initials, October 11, 1971,reprinted in New York Times, October 13, 1971.

"Arnold Weber, Special Assistant to the President and Executive Director ofCLC, resigned from these posts on October 22. Weber returned to the faculty of theUniversity of Chicago, but agreed to serve as a public member of the Pay Board.Edgar R. Fiedler, director of the Council's Policy Review Staff, was named DeputyDirector of CLC for the remainder of Phase I; see CLC News Release, October 22,1971.

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FIGURE 7

POSTFREEZE ORGANIZATION

Committee onInterest andDividends

Committee onHealth Services

Industry

Committee onState and Local

• GovernmentCooperation


PRICE COMMISSION

RENT ADVISORYBOARD

NationalCommission on

Productivity

STABILIZATIONOFFICES

(INTERNAL REVENUESERVICE)

PAY BOARD

EXECUTIVECOMPENSATIONSUBCOMMITTEE

ConstructionIndustry

StabilizationCommittee

AgriculturalStabilization

and ConservationService

Source: CEA Annual Report, p. 86.

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as well as decisions on changes in compensation (wages, salaries,and fringe benefits) on a case-by-case basis.

The Price Commission held similar powers in the price field. TheCommission would be composed of seven public members—"notbeholden to any special interest group," the President told theNation. Along with efforts to restrain price and rent increases, theCommission would seek to prevent employers from reaping "wind-fall" profits because of the operation of wage restraints. The Presi-dent called for price cuts as a means of distributing such profits toconsumers.

A number of specialized advisory committees were also to beestablished. These were designed to help restrain interest rates anddividends, seek cooperation with State and local governments, andsuggest ways to curtail price increases in the health services in-dustry. A Rent Advisory Board was established in November toadvise and assist the Price Commission in handling rent stabiliza-tion matters.18 The preexisting, tripartite Construction IndustryStabilization Committee came under the authority of the PayBoard. Further, the preexisting National Commission on Pro-ductivity was expanded and assigned the role of recommending toCLC and other stabilization agencies ways to stimulate economicgrowth and improve the productivity of American labor andindustry.

Primary responsibility for the management task in the postfreezeperiod devolved on a "Service and Compliance Administration"—within the Internal Revenue Service—reporting to CLC. Withinthe guidelines and regulations issued by CLC, the Price Commis-sion, and the Pay Board, IRS would answer inquiries, act onrequests for interpretations, and process appeals from adverse de-terminations. In addition, IRS was to provide information to thepublic, investigate complaints, and monitor compliance with sta-bilization guidelines. It was also to conduct fact-finding investiga-tions for the Pay Board, Price Commission, and CLC.

IRS was to carry out these functions through a national systemof regional and local service and compliance centers located in theIRS District and Subdistrict Offices. The centers would requireapproximately 3,000 people. Almost all these people would belocated in the field offices, and they would be supplemented bypersonnel from other agencies with expertise in labor, housing,and other specialty fields.

In addition, IRS would continue to be assisted by the Agri-

18 See Executive Order No. 11632, November 22, 1971.

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cultural Stabilization and Conservation Service of the Departmentof Agriculture. ASCS would provide information about the pro-gram through its more than 2,800 local offices, as it did during the90-day freeze, although it was not anticipated that ASCS would berequired to devote much effort to Phase II.

For many people within OEP headquarters and in the Regions,the assignment of Phase II administration to IRS came as a sur-prise; for many, especially those detailed from other agencies, itbrought a sense of disappointment. The OEP management of thefreeze had been exciting. From the outset most participants com-mitted themselves to giving the best possible service to the public,and they drew considerable satisfaction from the knowledge thatthey had performed well under that commitment. Many detaileeswould have chosen to continue serving with OEP had that Agencyremained in the driver's seat during Phase II.

In a personal message to his Regional Directors on October 7,Lincoln indicated the rationale for the assignment to IRS of thepostfreeze management task:

. . . This arrangement follows the thesis that OEP is an emergency agency,and although OEP is handling the emergency phase in an outstanding manner,we should not properly be charged for a prolonged period with what will becomea routinized administrative management task. In addition, OEP needs to revertto giving adequate attention to its other formal responsibilities. Furthermore,from the standpoint of practical administration, it will be necessary to expandeconomic stabilization personnel by 3,000 or more. This number of personnelcan be absorbed through attrition and without RIF-ing (reduction-in-force) in alarge agency as the stabilization program tapers off, but would present an un-manageable administrative problem to a small agency, and would be an unsuitablepersonnel load for the Executive Office.

Lincoln would continue to be a member of CLC and of its Execu-tive Policy Committee, and would require some staff support forthat function. His immediate concern, however, was to get theNational Office and Regional Directors to continue their fine workon Phase I operations and begin planning for smooth transitionto the Phase II program. That transition was to involve the passingof OEP activities to a number of different agencies (see Figure 7,above). Many questions regarding the final close-out of Phase Ioperations had to be resolved. Lincoln's first instruction to theRegional Directors was: "We will give maximum assistance to IRSin picking up the load." 19

19 Lincoln, Personal Message to OEP Regional Directors (Msg Bravo 251),October 7, 1971. The President's New Economic Policy, it will be recalled, includedprovision for a general 5 percent cutback in Federal personnel, which would havecost IRS about 3,500 spaces by the end of the fiscal year 1972. With the decisionto give IRS a major role in the freeze program, Treasury Secretary Connally gotan exemption of IRS from the personnel cutback. See "IRS Head Count: Too Muchfor Too Few," National Journal, April 8, 1972, p. 602.

177474-893 O - 72 - 13



OEP LINKS TO THE POSTFREEZE PROGRAM

Following the President's October 7 announcement of the Phase IIprogram OEP directed substantial effort to ensuring an orderlytransfer of its Phase I responsibilities. Clearly, this was vital to thecontinued success of the President's program. In the less than sixweeks remaining to the termination of the freeze, the new agencieswould have to organize, recruit staffs, develop guidelines for priceand wage behavior, and be prepared to cope with the flood ofapplications for increases and with special problems created by thefreeze. Along with continued concern with the administration ofthe freeze, OEP now also had to help the new agencies getlaunched.

Many complex problems with respect to this change-over hadto be addressed. Who would handle substantive policy questionsbefore the Pay Board and Price Commission became operational?What disposition would be made of the personnel loaned to OEP?Precisely what would be the roles and relationships, the budgetsand staffing levels, and the operating procedures of the Phase IIagencies? Should OEP concentrate on reducing its backlogs in theremaining weeks of the freeze, or should it devote resources torefining policies and definitions as a help to the Phase II agencies?Should OEP's analytical, computational, and management informa-tion capabilities be made available for postfreeze stabilization work,and could this be done without detriment to OEP's continuingmissions and without injecting OEP into the other agencies' man-agement systems? Should certain OEP freeze functions be trans-ferred before November 13? Pending the launching of Phase II,who should handle postfreeze correspondence and requests forspeakers? And what liaison channels, if any, should be establishedas the Phase II agencies got organized and became operational? 20

Clearly the utmost coordination would be required to assure asmooth and effective transition from the freeze to the longer-rangeprogram. Task forces were created, with representation from CLC,OEP, IRS, the Department of Justice, and the Office of Manage-ment and Budget, to direct the effort required for decisions onthese and other matters. Lincoln designated E. R. Heiberg, a

30 E. R. Heiberg III, Memorandum for Director, October 8, 1971, Subj: TransitionProblems; Truppner, Memorandum to Heiberg, October 13, 1971, same subject;Heiberg, Memorandum for Director, October 14, 1971, Subj: Notes for OMB In-spectors; R. A. Karam, Planning Review, Memorandum for Deputy Director DarrellM. Trent, October 19, 1971, Subj: MCL Activity in Economic Stabilization; Heiberg,Memorandum for Record, October 26, 1971, Subj: Meeting Concerning Transition.

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special assistant on his Coordination staff, to plan and followthrough on OEP's part in this vital task. Top priority items re-garding Phase II transition were set down, with a tight timeschedule for decisions.

Continuity of Freeze Rules

In this spirit of assisting the Phase II agencies, Lincoln askedhis Regional Directors to include in their remaining weekly reportsany comments received on the current acceptability of the economicstabilization program, principal criticisms, and critical problemsthat would require early attention.21 Among the problems thatcame up from the field was a sense of uncertainty regarding thePhase II program. Elements of the public and the business com-munity had gotten the impression that the lid on prices, rents,wages, and salaries would be lifted with the end of the freeze onNovember 13. Another problem was that the new economic stabili-zation agencies might not be ready to provide guidance for thePhase II program by the time it began.

Executive Order 11627 of October 15 sought to solve both theseproblems by stipulating that all existing provisions of the economicstabilization program would remain in effect until they werespecifically modified by the Pay Board, Price Commission, or CLC.To reinforce this point CLC Director Rumsfeld, in a release tothe public later the same month, emphasized that there would beno automatic ending of the existing freeze rules on November 13;they would be changed only by the introduction of new regulationsfor Phase II. The Administration thus sought to prevent "a gapthat would occur if present rules were allowed to end before newones had been instituted." 22

Issue Papers

It was clear also that many postfreeze policy questions wouldinvolve an extension of issues arising during Phase I. In an effort toassist the postfreeze agencies, OEP undertook to determine broadpolicy issues that the new agencies might want to consider prior tothe advent of Phase II, the more detailed questions that would

21 Msg Alfa 214, October 26, 1971.22 CLC News Release, October 28, 1971; see also Lincoln's Msg Bravo 304 to all

OEP Regional Directors, November 4, 1971. As things turned out, the Pay Boardand Price Commission came out with fairly comprehensive regulations prior toNovember 13.

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carry over from Phase I, and other issues that were likely to arisein the postfreeze program.23 Primary responsibility for compilingthese issue papers rested with Mr. Edward R. Saunders, Jr., DeputyAssistant Director for Resource Evaluation, who had cognizanceof freeze "policy questions."

An ad hoc committee under Saunders's leadership addresseditself to this task. Coverage extended not only to substantive policymatters but to organizational and procedural issues as well.24 Na-tional Office staff elements and OEP Regional Offices submittedstatements of issues which they believed should receive priorityattention in planning for the postfreeze period.25 These issuepapers were made available to the Price Commission and PayBoard on October 29.26

OEP counseled the new agencies on many other anticipatedPhase II problems. As was indicated earlier, OEP conducted ad-vance planning on standards, techniques, and formula methods ofselective control programs and on the application of econometricmodels to the estimation of inflationary impacts of alternativeprice and wage policies. Definitions of complex terms were madeavailable for use in Phase II planning. OEP compiled data onnational level denials of requests for exceptions and exemptions,as perhaps the best indicator of types of cases that were likely toarise again after November 13. Exception and exemption casematerials relating to Phase II were channeled to the Price Com-mission and Pay Board, so that they could become acquaintedwith the problems at hand and begin "building case law." 27 Inthe later stages of the freeze period, OEP's entire Office of theGeneral Counsel devoted substantial effort to ensuring an orderlytransition of rulemaking, compliance, and interpretations functionswhich that office exercised during Phase I. 28

28 G. L. Butler, Coordination Office, Memorandum for the Record, October 15,1971, Subj: OEP Input to Phase II Policy Formulation; Haakon Lindjord, AssistantDirector, Memorandum for Resource Analysis Staff et al., October 18, 1971, Subj:Preparation of Issues for Possible Use by Pay Board and Price Commission.

24 Lindjord, Memorandum for Record, October 19, 1971, Subj: Issue Papers forPossible Use by Pay Board and Price Commission.

^Quindlen, Memorandum for Director, October 26, 1971, Subj: Economic Stabili-zation Activities (Opns); Ltr, A. D. O'Connor, Regional Director, Region 1, Boston,Mass., to Paul Smith, Emergency Preparedness Coordinator, Department of Housingand Urban Development, November 8, 1971, end. to Ltr, Lincoln to Thomas B.Curtis, Chairman, Rent Advisory Board, Price Commission, December 1, 1971.

26 The contents of these papers are discussed on pp. 92-94.^Msg Alfa 247, November 6, 1971; Ltr. Lincoln to C. Jackson Grayson, Jr.,

Chairman, Price Commission, November 10, 1971, and enclosed "Index of Exceptionand Exemption Precedents Through P.R. 470."

28 Elmer Bennett, General Counsel, Memorandum for the Director, November 10,1971. Subj: The Conduct of the Freeze, Office of the General Counsel.

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Detail of Personnel

OEP assisted the "successor" agencies in several other ways.Many of the qualified personnel who had been detailed to OEPfrom other agencies were reassigned to the Phase II agencies.Offices which were to assume OEP functions were invited to ob-serve the Agency's operations and to send key personnel to workon-site during the remainder of the freeze. As for the detail ofOEP's regular staff, Lincoln was loath to turn over to the PhaseII agencies the talent that he had concentrated at "pressure" pointsfor the freeze period. Any takeover of this talent would haveseriously impaired the current and future leadership of the agency.Exceptions were made in some instances, but only with the Direc-tor's explicit approval.29

Regular OEP staff professionals and OEP-trained detailees fromother agencies helped in Phase II preparations; some made up thebasic cadres of agency staffs for the conduct of postfreeze opera-tions. The entire Policy and Guidance Liasion unit, headed byLouis Neeb, moved over to the Price Commission and formed theinitial core of its staff. In the 3 weeks before the end of the freeze,this group, along with key staff members from other OEP officesand the detailed personnel from OEP, constituted the principalsource of policy papers for the Commission and provided theinitial administrative support for all components of the organiza-tion. Neeb continued with the Price Commission, serving in thepivotal post of Executive Secretary. The OEP personnel whoshifted to the Price Commission took with them a familiarity withPhase I rulings, problems of impact, and problems of organiza-tion.30

Richard Murray, Deputy General Counsel at OEP and chief ofinterpretations during the freeze, joined the staff of the CLCGeneral Counsel in Phase II. Another key OEP staffer, DouglasJohnston, head of the OEP freeze Correspondence Section, joinedthe CLC Policy and Analysis staff to assist in the development ofpolicy issues for CLC consideration and to serve as direct liaisonbetween CLC and the Pay Board.

The Director also loaned two key people to help establish thePay Board: Spence Perry, who had been Norred's executive officer

a E . R. Heiberg, Memorandum of October 26, 1971, Subj: Personnel ActionsDuring Transition Period; Heiberg, Memorandum to Members, ESP CoordinationGroup, November 3, 1971, Subj: Support for Phase II Activities.

80 See e.g., Kenneth Clark, "A Suggested Approach to Post-Freeze Price Regula-tion," October 28, 1971; Ltr., Robert A. Kagan, Yale Law School, New Haven, Conn.,to OEP Historians, March 28, 1972.

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in the exceptions and exemptions area, and Arthur Dover, whohad served as Operations Center chief. They were assigned to thePay Board on November 1, and over the ensuing three weekscontributed significantly to the development of the Board's missionstatements, organization plan, manning tables, job descriptions,and other documents needed to activate the Board. As the Boardstaff took hold, Perry and Dover returned to OEP.31

OEP also assisted the Phase II agencies by making available animposing array of consultants and the members of its IndustryAdvisory Committees. Constituting the Economic StabilizationDivision's "stable of advisory talent," they represented nearly allmajor sectors of the economy.32 Prior to the freeze, the efforts ofthe OEP consultants and advisory committees had been directedtoward the development of direct controls tailored to particularindustries. The plans they helped to develop were not appliedeither in Phase I or Phase II. Nevertheless, several policy recom-mendations submitted to CLC and the Price Commission stemmedfrom OEP stabilization staff discussions with its consultants. Andseveral committee members were helpful in the identification ofpotential postfreeze problem areas.33 Rosters of these experts weremade available to the Price Commission and IRS for possible usein their programs.34

Planning for IRS Takeover

The most substantive transition planning related to the assump-tion by IRS of the OEP responsibility for the implementation andenforcement of the stabilization program. Fortunately, excellentrelationships had been established between OEP and IRS at boththe national and field levels. Mr. Edward F. Preston, who hadserved as IRS liaison with OEP in Phase I, was named IRS As-sistant Commissioner for Stabilization in Phase II. And in the fieldthe OEP and IRS offices drew on their past harmonious workingrelationships. The two agencies strove to make the changeover as

81 Dover, Memorandum to Lincoln, November 18, 1971, Subj: Wrap-Up Report.32 R. L. Hawes, "Position Paper on Post-Freeze Stabilization Program Potential

for Consultation and Handling of Appeals," November 4, 1971, encl. to Memo,Russo to Truppner, November 15, 1971, Subj: Industry Consultation in Phase II.

88 Semiannual Report of the Office Of Emergency Preparedness, Executive Officeof the President, July 1-December 31, 1971, February 15, 1972, pp. 27-28.

®* Russo, Memorandum to Butler, December 2, 1971, Subj: Input for the PriceCommission Staff; Lincoln, Memorandum to C. Jackson Grayson, Jr., Chairman,Price Commission, December 20, 1971, Subj: OEP Consultants and Industry AdvisoryCommittees; Ltr, Grayson to Lincoln, December 22, 1971.

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complete as possible by November 13. Problems pertaining to theadaptation and streamlining of IRS's already efficient organizationfor the Phase II mission were resolved by effective liaison and bythe positive attitude adopted by both agencies.

At the national level the two agencies established an "OEP/IRSTransition Task Force." Members broke into functional groups,consulted with their counterparts, and developed papers for dis-cussion and resolution of specific problems. For each basic freezefunction examined, the task force study covered that part of theOEP organization that had carried out the function, the staffingpattern, the personnel most suited for detail to IRS, and when thefunction might be transferred. In addition, OEP pointed up keyareas in which differences between freeze and postfreeze periods"are likely to be critical for organizational and personnel resourceplanning." 35 The process not only served to spotlight the natureand scope of the changeover, but also was considered a "learningfunction" for all IRS personnel on the task force.

A major decision had to be made concerning the organizationalstructure and management philosophy that IRS would employ tocarry out its postfreeze assignment. IRS hoped that it could main-tain a decentralized structure. On the other hand, in light of itsexperience in coordinating field operations on freeze policy direc-tives, OEP cautioned against excessive decentralization. "In ourjudgment," Heiberg advised Preston, "the press of the issues andthe fierce heat of both external and internal pressures at theCouncil-Commission-Board level will require a strong IRS Na-tional Office . . . and a strong, knowledgeable, and involved re-gional office. This situation will require the National Office toplace reporting and executive demands on the regions." 36 TheIRS organization included a National Office in Washington, D.C.;Assistant Commissioners for Stabilization in each of the seven IRSRegions; and stabilization chiefs for most of the District Offices.37

In the final 2 weeks of the freeze, IRS and OEP personnel metin groups and individually in training sessions. Lincoln invitedIRS to send its key people to OEP headquarters to observe andwork with OEP personnel as they completed Phase I business. Hedesignated Mr. Arnold C. Lewis, who headed the OEP InquiryReview segment of the Phase I operations, as chief OEP liaison

35 E. R. Heiberg, Chairman, Transition Task Force, Memorandum for CLC Staff,October 14, 1971, Subj: Transition Task Force.

36 Heiberg, Memorandum to Preston, October 27, 1971, Subj: Comments on Papers.37 For a list of key IRS stabilization officials, including the designation of Mr.

Gerald G. Portney, also an IRS careerist, as Preston's deputy, see IRS News Release(IR-1174), October 31, 1971.

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with IRS to help ensure a smooth transition. As was to be the casewith CLC and the Price Commission, IRS gave special attention toOEP's correspondence, Operations Center, and computer-basedinformation systems activities; these three sections had set upeffective complementary systems for organizing and communicatingfeedback of information from field offices, industry, and privatecitizens to the OEP and CLC policy groups.

IRS technical specialists reviewed the OEP computerized system,EMISARI, to determine what aspects of the system might be con-verted to run on IRS computers. The batch-oriented IRS com-puters were totally incompatible with the on-line EMISARI sys-tem. Nevertheless, IRS concluded that the OEP approach ofcomputer linking between the national and field offices was in-dispensable to effective stabilization management. At the requestof IRS, OEP undertook to design a version modified to suit specialIRS needs and to run it for them until alternate computer supportcould be established.38

At the field level OEP Regional Directors initiated meetings withIRS officials early in October to coordinate details of the transitionto the postfreeze program.39 The IRS National Office issued to theRegional Offices a timetable running through November 13 for theassumption of OEP's stabilization functions,40 and IRS "coordi-nators'* were designated to facilitate the transition. OEP RegionalDirectors briefed these coordinators and were asked to report anyforeseeable problems to the National Office. Questions that surfacedearly related to the discrepancies between OEP and IRS regionalboundaries; the need to train IRS personnel while continuing tomeet OEP responsibilities which were not abating significantly;the disposition of freeze records pertinent to IRS's newly acquiredfunctions and of legal cases in mid-stream; the availability to IRS

88 Robert H. Kupperman, Deputy Assistant Director for Resource Analysis,Memorandum to Edward F. Preston, Assistant Commissioner (Administration), IRS,October 26, 1971, Subj: Postfreeze Information and Reporting Systems for IRS.

^Eugene J. Quindlen, Assistant Director for Government Preparedness, Memo-randum to Director, October 12, 1971, Subj: Economic Stabilization Activities (Op-erations) , encl. to Memo, Heiberg to Director, October 12, 1971, Subj: Daily StatusReport, Economic Stabilization Activities.

40 John P. Cannon, Special Assistant/Regional Affairs, Memorandum to Director,October 12, 1971, Subj: Regional Operations Report.

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of the personnel then on loan to OEP Regional Offices; and thereporting, facilities, and public information needs of IRS.41

Because organizational relationships with IRS differed amongthe OEP Regions, it appeared to be impractical to develop a singleguide and timetable for transferring OEP functions.42 It was agreed,therefore, that arrangements for transition would be made on aregion-by-region basis. At the National Office, Mr. John P. Cannon,Special Assistant/Regional Affairs, concentrated on ensuring thereadiness of the OEP Regional Offices to transfer their functions toIRS. The Regional Directors drew up transition activity schedulesand forwarded these to the National Office. Cannon and his liaisonofficers monitored the activities in the field and kept a daily logof progress in effecting the transition.43

As was the case at the national level, OEP Regional Office per-sonnel assisted the IRS in establishing the postfreeze organizationsand developing plans for the orderly assumption of OEP functions.IRS liaison officials observed and reviewed all aspects of the OEPfreeze activity and interviewed "detail personnel" for possibleassignment to IRS. IRS employees were put into OEP RegionalOffices early for on-the-job training, and OEP personnel in turnwere stationed at some IRS offices to assist in launching the newactivities.44 Such assistance extended not only to the substantivedetails of the work in the field, but also to the development ofrelationships with high level representatives of business interests,unions, citizens groups, and Federal and State agencies.

The OEP and IRS Regional Offices reached agreements on allsteps in the transition and on the timing of the takeover—on in-quiries, requests for exceptions and exemptions, compliance casesthat had long-range implications, communications equipment, rec-ords, computer operations and preparation of reports, speaking

41 Cannon, Memorandum to Director, October 12, 1971, Subj: Regional Opera-tions Report; Quindlen, Memorandum to Director, October 15, 1971, Subj: EconomicStabilization Activities (Operations) ; Haakon Lindjord, Assistant Director, Memo-randum for Record, October 18, 1971, Subj: Notes from General Lincoln's Discussionwith Regional Directors, October 16, 1971; Heiberg, Memorandum for TransitionTask Force, October 20, 1971, Subj: Regional Transition Fact Sheet; William H.Hollaway, Regional Director, OEP Region 4, Atlanta, Georgia, Memorandum toWilliam J. Bookholt, IRS Regional Commissioner, Atlanta, Ga., and Eugene Quind-len, OEP National Operations Center, October 21, 1971, Subj: Suggestions for Transi-tion Phase of Economic Stabilization Program.

42 Lincoln, Msg Bravo 277 to OEP Regional Offices, October 22, 1971.43 Cannon, Memorandum for Director, November 1, 1971, Subj: Consolidation of

Replies to Bravo 277—Transition; Joseph Gerrety and E. R. Pereira, Memorandumto Cannon, November 8, 1971, Subj: After-Action Report.

^Cannon, Memorandum to Director, October 14, 1971, Subj: Regional OperationsReport; J. F. Sullivan, Jr., Regional Director, Region 2, New York, N.Y., Memo-randum to OEP Assistant Director, November 9, 1971, Subj: After-Action Report onOEP Region 2's Role in the Wage-Price Freeze.

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engagements, and numerous other matters. Through jointly spon-sored press conferences, the news media and the public were alertedto the IRS assumption of the OEP functions.

The changeover went smoothly; no serious problems arose. Afinal status report to the Director, dated November 12, indicatedthe completion of virtually all transition activity. Only a fewmatters remained for disposition after November 13.45 The ap-proach of this takeover date found IRS ready for the task of ad-ministering the Phase II program.46

REDIRECTION OF OEP EFFORTS

On November 15, Lincoln reported to the President on hisstewardship of the freeze. He stated in this report:

I have now terminated my managerial functions associated with the 90-dayfreeze, have assisted in setting up the ongoing stabilization organization, havetransferred the borrowed personnel to that organization or returned them totheir own agencies, and have refocused my Agency's efforts on its regularemergency and preparedness responsibilities. OEP will continue to provide allpracticable support to the ongoing Economic Stabilization Program.

In addition to handling its responsibilities under the freeze, OEPhad carried on its normal disaster assistance operations and otherhigh priority tasks. Of necessity, however, OEP had "cut backtemporarily on all but the most critical activities in our othernormal areas of responsibility." As a result, Lincoln told the Presi-dent, OEP now had to intensify its efforts in areas outside theeconomic stabilization and disaster assistance programs. Substantialemphasis, for example, would have to be placed on the Agency'sresponsibilities for the oil policy program and for assuring acapability to deal effectively with fuel and energy crises.47

With respect to postfreeze stabilization activities, Lincoln hadcontinuing responsibilities as a member of CLC. In this capacityLincoln saw his role, in addition to his general contributions tothe deliberations of the Council, as serving two purposes: first, tocontinue to make available to those administering the postfreezeprogram the experience gained in Phase I; and second, to ensure

45 Cannon, Memorandum for Director, November 12, 1971, Subj: Regional Opera-tions Report. OEP continued computer support to IRS for some weeks after thetermination of the freeze.

46 Press Conference of Donald Rumsfeld, Director, CLC, November 12, 1971(White House Release) ; OEP Press Release 490, November 12, 1971.

47 Lincoln, Memorandum for the President, November 15, 1971, Subj: Report onManagement of Phase I of the Economic Stabilization Program.

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that relevant experience with the ongoing stabilization programwas made available for OEP use in future planning.

While Lincoln would continue as an active member of CLC, itwas apparent that OEP would have to redirect its limited resourcesto its regular missions. Two staff members of his Planning Reviewgroup—William A. Fletcher and Patricia L. Spencer—provided im-mediate support for the Director's role as a member of CLC; theywere authorized to call on other OEP elements as appropriate forassistance in fulfilling this support role. The Director agreed toallow his staff to provide analytical and computational support toCLC, the Pay Board, and the Price Commission on a case-by-casebasis, upon request and with due regard to OEP's limited resources.

On this basis, three tasks were performed: (1) estimates of theimpact on the GNP deflator (a comprehensive indicator reflectingchanges in prices in the economy as a whole) of increases in certainfees charged by State and local governments; (2) estimates of theinflationary impacts of input-output sectors between 1965 and1970; and (3) the transfer to the Price Commission of the OEPinter-industry wage-price model and its associated data base for useby Phase II agencies, with the computer work done for the Com-mission by an outside computer contracting firm. The effect ofthese efforts was to free OEP from a continuing responsibility foranalytical support of the Phase II agencies by helping them tobecome self-sufficient in this field.48

OEP's ongoing responsibilities for emergency economic stabiliza-tion planning were made the subject of further analysis and dis-cussion. Lincoln called for staff proposals on how to proceed witheconomic stabilization planning for nuclear attack and less-than-nuclear attack situations. With respect to the first, he askedTruppner to consider "working with or making delegations to aFederal agency having economic responsibilities and having a fieldorganization." The feasibility and desirability of such an approachwere to be considered in comparison with previous reliance on theStates (via the OEP Regional Offices).

"As regards economic stabilization planning for less-than-nuclearattack situations," Lincoln indicated, "we clearly must take intoaccount the fact that a substantial on-going economic stabilizationprogram is now in existence. This raises questions about the level

48 Terrell E. Hunt, Economic Stabilization Division, Memorandum to Historian,March 14, 1972, Subj: Postfreeze Analytical Support to the NEP Agencies, andattachments.

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of resources which OEP should devote to this area at present." 49

With this guidance, extensive staff work ensued on a program thatwould reflect the experience with the freeze and the realities ofthe significantly different environment created by the existence ofthe Phase II stabilization agencies.50

In July 1972 the Director returned the Economic StabilizationDivision to the Government Preparedness Office, thus terminatingits temporary location under the Assistant Director for ResourceAnalysis. At this time the Director made it clear that OEP planningfor economic stabilization in situations short of nuclear war wouldbe kept to a minimal level until the existing structure (CLC, PayBoard, Price Commission, etc.) was terminated. As soon as itappeared that this structure was to be phased out, however, OEPwould promptly consider the requirements for an expanded effortin planning for less-than-nuclear economic stabilization.51

49 Lincoln, Memorandum to Truppner, December 20, 1971, Subj: OEP EconomicStabilization Activities.

50Truppner, Memorandum to Lincoln, January 21, 1972, Subj: Proposed OEPEconomic Stabilization Program and attachments A-H; Lincoln, Memorandum forRecord, February 7, 1972; Russo, Memorandum to Truppner, February 16, 1972,Subj: Economic Stabilization Program; William A. Fletcher, Planning Review, Memo-randum for Lincoln, May 15, 1972, Subj: Economic Stabilization Program; Lindjord,Memorandum for Lincoln, no date, same subject; Lindjord, Memorandum forQuindlen and Truppner, May 22, 1972; Truppner, Memorandum for Lindjord, May31, 1972, Subj: Economic Stabilization Program.

51 Lincoln, Memorandum to All OEP Personnel, July 21, 1972, Subj: EconomicStabilization Division—Organization and Program.

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IX

Concluding Observations

The economic stabilization program was designed to achieveprice stability with strong economic growth and high employmentat home and to check the erosion of the Nation's internationaleconomic position. The President's August 15 announcement ofhis New Economic Policy brought a surge of confidence and afeeling of hope to many Americans. Congressman Wilbur D. Mills,Arkansas Democrat and Chairman of the House Ways and MeansCommittee, in a news conference some 4 weeks later, said thatthe Nixon program had effectively kept the national economy fromworsening. "I believe," Mills asserted, "that we would not haveseen the worst in the path of our economy by August 15 if the newpolicies had not been put into effect." *

The freeze had the desired effects: it checked the upward surgeof prices and wages, began to dampen the inflation psychology,and afforded the Administration the breathing space needed todesign and put in place a longer-term and more flexible stabiliza-tion program. The sense of euphoria with which the President'sAugust 15 pronouncement was greeted, however, showed signs offading as the Nation got down to the practical, day-to-day problemsof living under the freeze.

There were those who felt, too, that the Administration wasunduly and prematurely optimistic about the success of its efforts;they could point to flaws in the program and to many unmet ob-jectives. On two points, however, there could be little room fordisagreement: the ''shock therapy" of the freeze achieved measur-able results in stemming inflation; and the Office of EmergencyPreparedness, with the very extensive help of other agencies andthe gratifying cooperation of the American people, accomplishedits assigned mission in an outstanding manner.

1 Quoted by Isadore Barmash in article "Mills Says He Still Favors a TripartiteBoard," New York Times, September 18, 1971.

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CONCLUDING OBSERVATIONS

BENCHMARKS OF SUCCESS

No one could claim that total victory was achieved on theinflation front. Nonetheless, indices of economic activity soon pro-vided evidence that the freeze had achieved its primary goal ofreducing the rate of inflation.

Consumer Price Index

The Consumer Price Index (CPI) showed a dramatic slowdownin the rate of inflation. In the 3 months of the freeze, the CPI roseonly 0.4 percent, compared to 1.0 percent in the previous 3 months—a decline of more than half. Translated into annual rates, thepercentage changes for selected months in 1971 are depicted inTable 12.

TABLE 12.—Changes in consumer prices, selected months, 1971(Seasonally adjusted, except for services)

Percentage change from 3 monthsearlier (annual rate)

Item February May August November

All items 4.0 4.2 4.0 1 7Food 1.7 8.2 2.7 L7Nonfood commodities 3.2 4.2 3.1 .0Services 5.6 2.9 6.1 3.1

Source: Department of Labor/CEA Annual Report, p. 81.

Even this good record reflects only part of the story. All priceswere not frozen; some items such as unprocessed agriculturalproducts, imported goods, and interest rates were exempt fromthe freeze. Furthermore, the time lags in gathering and reportingprice data inevitably brought prefreeze price changes into thepicture. To get a clearer reading of the effect of the freeze, specialanalyses of item-by-item price changes were undertaken. "Theseshowed," the Council of Economic Advisers observed in its 1971report to the President, "that except for raw agricultural productsthe prices were unchanged between October and November for 86percent of 120,000 consumer items for which comparisons couldbe made; for about 6i/£ percent prices declined, and for about 7percent prices increased. . . . A similar pattern was found for theSeptember-October period. Some increases were, of course, per-mitted by the CLC regulations, but it was not possible to determine

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from these data whether the small proportion of increases that didoccur were entirely the result of allowable increases." 2

Thus, while the statistics do not reveal with absolute precisionthe impact of the freeze, they do attest to the effectiveness of thefreeze in moderating, if not halting, consumer price increases. Thefreeze, it appeared, went a long way toward breaking "inflationaryexpectations." Noting the CPI for October, Ezra Solomon, memberof the Council of Economic Advisers, asserted: "We can safelyassume that the kind of inflation we were seeing prior to Augustis something of the past." 3 With the CPI for November againpointing to a rise of only 0.2 percent, President Nixon observed:"We can now confidently say that 1971 is ending on a most encour-aging economic note, and that 1972 will begin as a year of greateconomic promise." 4

Wholesale Price Index

More dramatic evidence of the role of the freeze in cracking theinflation problem could be gleaned from the Wholesale Price Index(WPI). September—the first full month of the freeze—saw whole-sale prices turning sharply downward. They fell 0.4 percent—thelargest monthly decrease after seasonal adjustment since October1966. Most of the commodities measured were covered by thefreeze, and nearly all prices used in the September index werethose in effect after the freeze began. The message that this Septem-ber WPI conveyed, Lincoln reported to CLC Chairman Connally,"is that the freeze is working." 5 In announcing his Phase II pro-gram on October 7, President Nixon could point to the Septemberdecline in the WPI as clear evidence that the wage-price freeze "hasbeen remarkably successful." 6

The WPI declined at an annual rate of 1.3 percent from Augustthrough November 1971. Table 13 reflects the changes overall andby specific commodity groups for selected months in 1971:

2 CEA Annual Report, pp. 81-82.3 Quoted by Carole Shifrin in article, "Consumer Price Rise 0.2%, Smallest

Increase in 4 Years," Washington Post, November 20, 1971.4 Quoted by Edwin L. Dale, Jr., in article, "Price Index Rises by a Small Amount

for a Third Month," New York Times, December 23, 1971.5OEP Weekly Summary Report to CLC Chairman, October 9, 1971, p. 25.0 "The Continuing Fight Against Inflation," White House Release, October 7,

1971.

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TABLE 13—Changes in wholesale industrial commodity prices, selected months, 1971(Seasonally adjusted except as noted)

Percentage change from 3 months„ ,. earlier (annual rate)Commodity group v

May5.05.7

4.3

3.6— .8

.724.22.29.33.2

1.110.2

.4— 1.1

August6.56.1

3.6

2.8.8.0

44.94.5

10.93.9

2.29.92,6.7

November- 1 . 3— .4

.7

- .7-1.9— .7- 3 . 2

.4- .7- 1 . 4

— .41.31.1

.7

February

Industrial commodities 2.9Textile products and apparel — 1.1Hides, skins, leather, and related

products 6.7Fuels and related products and

power 13.0Chemicals and allied products . . . . 3.9Rubber and plastic products 1.5Lumber and wood products 9.0Pulp, paper, and allied products . . .0Metals and metal products — 4.7Machinery and equipment 4.3Furniture and household

durables 3.7Non metallic mineral products . . . 11.6Transportation equipment • 4.5Miscellaneous products 4.4

a Not seasonally adjusted

Source: Department of Labor/CZL4 Annual Report, p. 82.

"The decline/' the Council of Economic Advisers reported, "af-fected most of the industrial commodity categories; the few in-creases that did occur were attributable to import price increasesor factors such as the seasonal fluctuations associated with intro-ductions of new automobile models/'7

Other Encouraging Signs

Reductions in interest rates afforded further evidence that theNEP during the freeze period was moving in the right direction.In testimony before the Senate Committee on Banking, Housingand Urban Affairs, November 2, 1971, Dr. Arthur F. Burns, Chair-man of the Federal Reserve Board, noted that, since mid-August,long-term market interest rates had come down three-fourths toone percentage point, and that short-term market rates had de-clined about one-half to three-fourths of a percentage point. Fur-ther, there were signs of improvement in economic activity. Figuresfor September 1971 showed a good expansion in retail sales, withautomobile sales particularly strong. Industrial production rose,and employment increased sharply, with gains widespread among

7 CEA Annual Report, p. 82.

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various industries. Although orders for business capital equipmentremained sluggish, contracts for commercial and industrial con-struction spurted. As the economic recovery gathered momentumin the postfreeze period, the Administration hoped to see sub-stantial alleviation of the Nation's unemployment problem.8

POINTS OF CONFLICT

While few would quarrel with the statistical record, the freezeremained a matter of some concern and disagreement. Labor lead-ers, for example, frequently denounced the freeze as grossly in-equitable. Employers, they contended, cheerfully helped to blockwage increases, while the policing of prices left much to be desired.Business found ways to evade the freeze, labor spokesmen argued,and the continued sluggishness of the economy and high unemploy-ment were added proof that the President's New Economic Policyfell short of its objectives.

American business, though heartened by evidence of an easingof inflation, was far from exuberant as the period of the freeze drewto a close. Some industry leaders were fearful that the Government'shuge budget deficits would continue to contribute to inflation. TheUnited States balance-of-payments deficits and international mone-tary problems also contributed to uneasiness in the business world.After registering major gains in the first flourish of enthusiasm overthe President's program, the financial markets treated their way withcaution as concern over the general economic situation deepenedin investment circles. There was considerable uncertainty overthe Government's plans for Phase II; and, while Governmentofficials voiced optimism over the postfreeze program and theprospects for business in 1972, industry remained hesitant aboutcommitting large amounts of capital for new equipment and en-

8 Economic Stabilization Legislation, Hearings before the Senate Committee onBanking, Housing and Urban Affairs, on S. 2712, 92nd Cong., 1st Sess. (Washington:Government Printing Office, 1971), p. 98.

193474-893 O - 72 - 14



larging inventories, which they would be expected to do in antici-pation of a sharp economic upturn.9

At the consumer level, the feeling generally was that the freezehad slowed inflation. As Phase I neared its end, however, manypeople saw the prospect of renewed price rises. Few consumerscould fathom the subtleties of price indices; for many the ultimatetest was what was left in the pocketbook after leaving the grocerystore. On this score, consumer attitudes gave little cause for en-thusiasm. Along with concern about price hikes, there was vexationover wage ceilings, and much grumbling from wage-earners whohad been deprived of approved but not yet effective pay boosts.

Nor was there a consensus among professional economists on thepurpose and direction of the stabilization program. Some wouldsimply have accepted inflation, even at the rate of about 5 percent,as a lesser evil than direct price and wage controls. And others,while recognizing the need to control inflation, urged the necessityof addressing more fundamental problems, such as channeling theNation's resources and energies toward optimum real economicgrowth, meeting priority domestic needs, and achieving economicand social justice.10

OEP MANAGEMENT OF THE FREEZE

Considering the secrecy surrounding the President's decision ona freeze and the consequent lack of opportunity for advance ad-

9 Strong gains in industrial output in the first 3 full months of the postfreezeprogram (December 1971 and January and February 1972) , however, seemed toindicate that the expected upturn of the economy in 1972 might be occurring; seeHerbert Stein, "Things Look Better," New York Times, March 21, 1972: Edwin L.Dale, Jr., "Production Rises in First Quarter; Inflation Up Too," New York Times,April 20, 1972. By mid-1972, almost a year after the launching of the President'sNew Economic Policy, the Council of Economic Advisors could point to significantprogress on a wide front. See The Economy at Mid-1972, Testimony of the Councilof Economic Advisors submitted to the Joint Economic Committee of the Congress,with an Introduction by the President, August 1972 (Washington: GovernmentPrinting Office, 1972) . See also Department of Commerce Press Release BEA 72-53,August 17, 1972, which issued revised statistics reflecting an even better economicrecovery than indicated by the preliminary statistics of the CEA report.

10 See, e.g., Samuel Lubell, "Testimony before the Joint Economic Committeeon the President's New Economic Program," September 15, 1971; Brookings Paperson Economic Activity 2: 1911, Arthur M. Okun and George L. Perry, editors (Wash-ington: Brookings Institution, 1971) ; Gottfried Haberler, "Incomes Policy andInflation: Some Further Reflections," Proceedings, 24th Annual Winter Meeting,Industrial Relations Research Association, New Orleans, La., December 27-28, 1971,p. 134; William E. Fellner, Aiming for a Sustainable Second Best During the Re-covery from the 1970 Recession (Washington: American Enterprise Institute forPublic Policy Research, 1971) ; Leon H. Keyserling, Wages, Prices, and Profits,Phase II Guidelines vs. Appropriate Policies (Washington: Conference on EconomicProgress, December 1971), and article "Keyserling Sees Confusion About NationalGoals, Means," adapted from this study, in Washington Post, January 16, 1972.

194



ministrative preparations, the administration of the program, theCouncil of Economic Advisers reported in January 1972, "must beaccounted outstandingly effective/' u On very short notice OEPreordered its priorities, assumed its new responsibilities, modifiedits field structure, relocated its Regional Offices, doubled its Na-tional Office staff, and expanded the field staff sixfold by borrowingpersonnel from more than 40 other Federal agencies. There was nolead time to organize the operation fully before the flood of queriesdescended upon the OEP National and Regional Offices. Yet,within a few days, OEP had in place a functioning nationwideadministrative, information, and compliance network.

Some measure of the management challenge facing OEP can beobtained from the volume of actions involved in the administrationof the freeze. More than one million public inquiries were handled—just over 10,000 per day on the average. Some 50,000 letters wereanswered in the OEP National and Regional Offices. Nearly 46,000reports of alleged violations were received, and about 5,500 lettersconcerned with exceptions and exemptions were considered.12 Itstime-tested capability for rapid response to domestic economiccrises and natural disasters and its smooth interaction with otheragencies and effective communication with the public on thesematters all stood OEP in good stead in meeting the challenge.

Organization

The structure and procedures put together to carry out the jobwere essentially adaptations of existing systems both in the Na-tional Office and the field—systems already tested in OEP's typicalemergency operations. They proved basically sound, and the speedwith which they became operational was remarkable. Life for OEPstaff, regulars and detailees alike, was hectic, but morale was highthroughout the freeze. Nearly all the participants felt especiallyprivileged to have had a part in an important and exciting under-taking.

This response to the demands of the freeze was in part madepossible by the assistance of the General Services Administration(GSA) and the Civil Service Commission (CSC) and by the whole-hearted support of other Federal agencies in lending highly quali-fied personnel to OEP. Faced with the need to relocate eightRegional Offices to new sites and to establish two Regional Offices

11 CEA Annual Report, pp. 80-81.™CLC Quarterly Report, August 15-December 31, 1971, p. 11.

195



from scratch, OEP inevitably encountered logistic support prob-lems. None of these, however, was of such magnitude or durationas to endanger the success of the program.

OEP's ability to muster the cooperation of other Federal agenciesstemmed from the good will and procedures built up in workingwith agencies in emergency planning, crisis management, anddisaster assistance activities. Staff augmentation with temporary-duty people presented logistical and administrative problems andposed demanding requirements for orientation, training, and co-ordination of effort. The technical and professional people assignedto OEP from the other Federal agencies were generally of highcaliber; a number were definitely outstanding. Representatives ofthe Civil Service Commission and the Office of Management andBudget were helpful in preventing excessive turnover of key per-sonnel and in prying loose sorely needed attorneys and stenogra-phers. The borrowed personnel proved indispensable in meetingthe requirement for immediate response, and they made a vitalcontribution to the successful management of the program. Theiruse also fitted in well with the temporary nature of the freeze andthe desire to avoid building a permanent bureaucracy.

OEP's working relationships with IRS in the field were excellent,and they were a key element in the success of the program. Re-lationships with the Agricultural Stabilization and ConservationService also were excellent; the ASCS country offices met a basicneed, although public demands on them were relatively light.

Administrative Management

OEP's freeze responsibilities generated a major requirement fora greatly increased volume of rapid communications, particularlybetween the National Office and the Regional Offices. It was im-portant that all citizens receive timely and valid information con-cerning the freeze and its impact, and that inquiries, complaints,and requests for exceptions and exemptions receive prompt andappropriate attention. Upon the Regional Offices fell a great partof the burden of achieving effective communication with the pub-lic. Almost without exception, the Regional Directors cited shortageof communications facilities as one of the principal problems en-countered during the initial days of the freeze. Shortages were soonovercome, however, and by the end of the first week messages weregenerally being handled with a high degree of efficiency.

The freeze further emphasized the need for the immediate es-

196



tablishment of a strong link between headquarters and field officesin freeze operations. This was the essential function of the Opera-tions Center at OEP headquarters. The Operations Center func-tioned occasionally around-the-clock but generally on a two-shiftbasis, receiving inquiries; reviewing, processing, and distributingthem to headquarters staff divisions and other government agencies;and following through to ensure prompt action. Personnel assignedto this office by other Government agencies to assist OEP stafffacilitated liaison and rapid response. After-action reports fromboth the headquarters and field elements emphasized the im-portance of having from the outset of an emergency a single controlsystem to facilitate the processing of inquiries.

Initially, different OEP headquarters elements made separateand duplicating requests for information from the Regions. Tosome extent this came about because various headquarters offices,especially the Operations Center and the Regional Affairs Office,tried to handle directly problems encountered in the Regions.13

The problem also stemmed from the fact that responsibilities werenot always well defined and tight deadlines left little time to co-ordinate with all interested offices.

All this pointed to the need to establish promptly a single focalpoint at OEP headquarters to control all communications with theRegional Offices. At the same time, the work of Mr. Cannon, asSpecial Assistant for Regional Affairs, was essential, particularly inthe early weeks, in ensuring that important problems receivedprompt attention despite the huge volume of traffic in the Opera-tions Center. Lincoln resolved the problem by issuing instructionsthat all incoming and outgoing communications go through theOperations Center. Direct staff contacts on technical and admin-istrative matters, however, were permitted. Cannon served as the"Inspector General" as well as a direct conduit from the RegionalOffices to the Director, the Deputy Director, and other componentsof the National Office on special problems.

One general complaint from the Regions was that the NationalOffice requirements for reports were extremely burdensome.14 OEPRegional Directors were accustomed to operating in emergencieswith minimal reporting. Some did not sense that this national effortrequired consistent, up-to-the-minute reporting as a managementtool. Lincoln explained this need; at the same time, to ensure

13 Cannon, Memorandum to Planning Review (Attn: Laurent Morin), November9, 1971, Subj: After-Action Report.

14 "Lessons Learned in Phase One", Attachment to Memorandum, Truppner toMorin, December 13, 1971, Subj: After-Action Report on Freeze.

197



better control, he directed that no reporting requirement be placedon the field unless specifically authorized by him.

One device for achieving coordination was the 5 o'clock Co-ordination Meeting of key officials from all major headquarterscomponents. Chaired by Assistant Director Lindjord, these meet-ings went far to meet the need for a focal point for intra- andinteragency contact. They helped to keep the program coherentand on the track. Lincoln's early institution of this coordinatingmechanism contributed notably to OEP's effectiveness in the ad-ministration of the freeze.

Policy Guidance

The success of Phase I operations depended in no small measureon the timely and effective formulation, dissemination, and in-terpretation of policy. In the first few days of the freeze, the urgentneed for guidance was met, in part, by giving wide publicity tostandard answers to the most common questions. Nevertheless,people manning phones in information centers at headquarters andfield offices alike had one general complaint: there were too manyquestions and too few answers. Reflecting on the hectic experiencein the initial stage, some OEP planners wondered whether it mightnot have been wiser to have put a moratorium on replies to queriesfor several days pending the development of meaningful guidanceby economists and lawyers. Another alternative, they thought,might have been to put a group of experts to work on stabilizationguidelines "prior to the freeze announcement and under lock-upconditions" at some remote location.15

Considering the circumstances and the pressures under whichthey worked, the OEP staff, backed up by experts from otheragencies, responded ably to the challenge. They gave strong supportto the Director in his work with CLC and its Executive PolicyCommittee. With these bodies meeting almost daily and even morefrequently in the early days, Lincoln was in a good position tobring up issues for deliberation and decision without unacceptabledelay. The core of the Stabilization Program Guidelines manualwas compiled and distributed in the first week, and new policyissuances were added to it every few days. The OEP GeneralCounsel played a vital role in the policy area, and his input becameall the more evident as he expanded his legal staff to the level

15 Enclosure to Memorandum, Truppner to Morin, November 16, 1971, Subj:After-Action Report on OEP's Role in the Wage-Price Freeze.

198



needed to ensure the legality and consistency of proposed policypapers, answer complex inquiries, provide needed interpretations,or have the issues referred to CLC for resolution.

Policy development was a never-ending task, and it was neverdevoid of problems. There were instances, especially in the firstfew weeks of the freeze, when guidance was unclear, contradictory,or long delayed, with resultant embarrassment and frustration inthe field. Regional Offices complained that some inquirers went on"shopping sprees'* at various echelons of the system in quest ofanswers they wanted. As questions became more involved, theavailable guidance did not always suffice; and policy clarificationsor changes, especially with regard to teachers' salaries, causedcriticisms and strained relationships in some cases. In the vastmajority of situations, however, guidance and rulings were entirelyadequate for program administration.

Exceptions and Exemptions

The "hard line" taken on requests for exceptions and exemptionswas criticized by some as overly harsh. Only five requests weregranted, while 3,230 were denied. The seeming inflexibility of thefreeze was a sore point with a number of Regional Directors andwith individuals and firms whose requests were denied. Many casesof "gross inequity" existed, the Regional Directors contended, butmost of these were rejected as a matter of policy. Even for 90 days,they felt, greater flexibility based on justice and common sense wasdesirable.

A stringent policy admittedly caused hardships, and perhaps evensome inequities. The inequities, however, did not stem from thefact that particular decisions were unfair but rather were a reflec-tion of a policy to put a lid on the pot that was boiling too fastand to keep the lid on for 90 days. A freeze simply precluded thelatitude and dynamic adjustments that would come under a systemof controls such as that planned for Phase II.

In retrospect, it would appear that most people were willing toaccept personal deprivation and even a sense of inequity if theywere all in the same boat. The fact that requests for exemptionswere comparatively few may have reflected a sense of futility, butit also suggests that few firms and individuals were seriously in-jured by the freeze. The Government's hard line met with a favor-able response from the general public. By keeping exemptions to

199



a minimum, OEP prevented requests from snowballing and thushelped to ensure continued public acceptance of the freeze.

Compliance and Enforcement

With the program so heavily dependent on public confidenceand support, it was especially important to ensure widespread com-pliance. The freeze administrators relied primarily on voluntarycompliance, but this was supplemented by a system for reportingand investigating complaints of alleged violations. Informal per-suasion generally brought violators into line; only 45 cases out ofapproximately 46,000 complaints received over the 3-month periodwere referred to the Justice Department for legal action.

The available statistics attest to a very high degree of compliancewith the freeze. Surveys by IRS and several consumer groups un-covered some violations, but these appeared to have been relativelyminor exceptions to the general adherence to the rules of the freeze.Still, some Regional staff specialists had strong suspicions thatmany violations never came to light. IRS lacked sufficient personnelto police the program in depth. Had the requirement for readyaccess to price information been firmly established from the outset,consumers would have had a better basis for detecting and report-ing violations. Moreover, incomplete investigations and insufficientdocumentation of alleged violations delayed the processing of casesfor prosecution. More active pursuit of violators and imposition ofpenalties even on those who agreed voluntarily to roll back illegalprice increases, several Regional after-action reports asserted, wouldhave generated even greater voluntary compliance and public confi-dence in the freeze. These improvements, of course, could onlyhave been achieved with a larger bureaucracy.

Informing the Public

Despite complaints about undetected violations and the firmpolicy on exceptions, public support for the program remainedstrong to the very end of the freeze. The wide public support wasof prime importance in the successful administration of the freeze.Lincoln attested to this on many occasions during the 90-dayperiod. In his Economic Report transmitted to the Congress inJanuary 1972, President Nixon observed: "The freeze was a greattestimonial to the public spirit of the American people, because

200



that result could have been achieved with the small enforcementstaff we had only if the people had been cooperating voluntarily." 16

The OEP National Office and the Regional Offices conductedvigorous public information programs. The news media were usedfully and regularly to inform the public of policy pronouncementsand to explain the operation of the freeze. To explain the programand seek support for it, top management and staff specialists ap-peared frequently on TV and radio, spoke before business, labor,and other groups, and maintained liaison with officials of State andlocal governments. IRS support was most helpful in adjusting na-tional press releases to local conditions, distributing them to thenews media, and providing useful feedback on the public's reactionto the freeze.

After-action reports contained very few criticisms of the informa-tion activities. At the national level the OEP Congressional andPublic Affairs Office noted the lack of a single, central point forthe release of all printed materials dealing with the freeze. Generalreleases from OEP headquarters, some field offices felt, went un-heeded because they were not sufficiently responsive to local in-terests. OEP's public image, others noted, was not helped by theAgency's espousal of unpopular causes, such as challenging hikes inteachers' pay, Girl Scout fees, and sport ticket prices. By and large,however, there was general agreement that the public informationprogram was highly effective in furthering the objectives of thefreeze.

Transition to Phase II

Even though preoccupied with the day-to-day problems of ad-ministering the freeze, OEP staffers contributed conceptual andanalytical papers for consideration in the early planning for thepostfreeze stabilization program. During the later stages of thefreeze, they devoted substantial effort to working with IRS, the PayBoard, the Price Commission, and the CLC staff in preparing toshift to those agencies the policy formulation and managementresponsibilities that OEP exercised during Phase I. Of specialimportance was the OEP contribution in terms of personnel, bothpermanent and detailees, who had their baptism of fire during thefreeze. This experience had given them all some sense of what thecontrol effort was about, and some "feel" for the problems andfor their resolution. With Lincoln's approval, many were detailed

16 CEA Annual Report, p. 4.

201



to the new Phase II agencies; they gave these agencies the ad-vantage of their experience and contributed significantly to gettingthese organizations off the ground.

Overall Assessment

The major problems encountered during the freeze related tothe unavoidable lack of specific administrative preparation and theoverwhelmingly heavy burden of responsibility thrust upon OEPwithout warning. Yet, for all the problems, the program was carriedout with extraordinary success. It was a measure of OEP's abilityto handle crisis-type responsibilities. The record abounds in recog-nition at the highest levels of the outstanding performance of thePhase I mission.17

Repeatedly in the later stages and at the end of the freeze,Lincoln praised his people for their accomplishment. He was par-ticularly appreciative of the efforts of those on the firing line. Theyhad done "an almost impossible job" well, Lincoln told his Re-gional Directors at a conference in Washington on October 16,and he recognized "the tremendous help" of other Federal agenciesin this achievement.18 On the eve of the IRS takeover, Lincolnsent a priority message to the Regional Directors, reiterating hisappreciation of the job they had done "with the magnificent as-sistance of the other Federal agencies" in undertaking and execut-ing the field mission.

You carried out the task in an outstanding manner and the achievement hasbeen widely recognized by knowledgeable people. A member of the Council ofEconomic Advisers, in a speech recently, categorized personnel of this agency as"the heroes of the freeze."

This message is to transmit to you my personal thanks for a superb job welldone and to ask that you inform all those working with you including themembers of your team effort from other agencies.

The 90-day effort has been a success and that success would not have beenachieved without the magnificent effort in the field.19

"See, for example Philip Shabecoff, "Director of Freeze Satisfied Thus Far,"New York Times, September 13, 1971; "Text of Remarks by the President Tapedfor Closed-Circuit Television Replay to 26 Regional Meetings of the NationalAssociation of Manufacturers," White House Release, October 28, 1971; "Remarksof the President in a Meeting of the Cost of Living Council," White House Release,November 15, 1971; CEA Annual Report, pp. 80-81; CLC Quarterly Report, August15-December 31, 1971, p. 95; Arnold R. Weber, "A Wage-Price Freeze as an Instru-ment of Incomes Policy; or the Blizzard of 71," Proceedings of the Twenty-FourthAnnual Winter Meeting, Industrial Relations Research Association, New Orleans,La., December 27-28, 1971, pp. 153-161.

18Haakon Lindjord, Assistant Director, Memorandum for Record, October 18,1971, Subj: Notes from General Lincoln's Discussion with Regional Directors, October16, 1971.

19 Msg Bravo 326, November 12, 1971.

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Later that month, in acknowledging a report from Lincoln onhis management of the freeze, President Nixon paid tribute to theDirector and his people on their performance:

With the August 15 announcement of the 90-day wage-price freeze came theenormous and unprecedented task of administering the new Economic Stabiliza-tion Program. This was assumed by the Office of Emergency Preparedness witha thoroughness, efficiency and dispatch that has long been characteristic of youand your small staff, and the clear success of this initial phase is ample testimonyto your splendid efforts.

While few Americans have specific knowledge of your contributions, I amcertain that I speak for all of them in expressing admiration and gratitude forthe sound and responsive management you provided. . . . You and your col-leagues are to be commended and I hope you will convey to them my deepappreciation for their fine work.20

Lincoln shared the President's letter with all OEP personnel, andhe added his personal thanks for their part "in meriting the Presi-dent's recognition and commendation to this Agency and its per-sonnel/' 21

In the final analysis, the success in administering the freeze canbe ascribed to the overwhelming support and continuing coopera-tion of the American public. At the same time, this does not detractfrom the central importance of timeliness of action, consistencyof response, and closely coordinated teamwork.

Lincoln highlighted these factors in a broad review of his ex-perience as manager of the freeze. Timely action, he indicated,was a keynote in OEP's operations—both to keep up with the heavyworkload and to allow the public to plan intelligently on the basisof the Federal Government's answers to questions. Expeditiousaction helped to prevent freeze violations and to reduce the numberof investigations and court actions. Throughout the freeze, OEPplaced heavy dependence on the thesis that timely provision ofinformation, coupled with an obvious presence of authority withthe power to enforce the freeze, would help maintain the highdegree of voluntary compliance shown by the public from thebeginning.

Consistency in policy application, Lincoln observed, was facili-tated by an efficient communication network and a closely knitstaff operation in Washington and in the field.

Finally, Lincoln stressed the vital importance of teamwork inthe successful administration of the freeze. There was completecooperation among OEP's small but expanded organization, theother agencies involved, and the small staff of the Cost of Living

^Ltr, President Richard Nixon to Lincoln, November 23, 1971.21 Lincoln, Memorandum to All OEP Personnel, November 29, 1971.

203



Council. On top of this integrated administrative framework, more-over, was a responsive policy body, the Cost of Living Councilunder the chairmanship of the Secretary of the Treasury.22

Support of the President's freeze program inevitably divertedmanpower from programmed planning tasks. Accomplishments byOEP and other agencies in the freeze activities, however, were oftranscendent importance. Responding to a real emergency, OEPand all collaborating agencies found themselves in an environmentthat taught them more about emergency management than couldany amount of planning and exercises. The experience with thefreeze, along with experience with natural disasters and withmanaging resource-crises, substantially improved the Government'spreparedness posture. Future preparedness planning will, no doubt,reflect the lessons learned in the quest for solutions to problemsencountered in these live emergencies. In that respect the wage-price freeze was of special importance because of its national scopeand the variety of management problems it presented.

22 "Activities of the Office of Emergency Preparedness During the 90-Day Freeze,"Encl. to Memorandum, Lincoln to Earl D. Rhode, CLC, January 10, 1972; Semi-annual Report of the Office of Emergency Preparedness, July 1-December 31, 1971,February 15, 1972, pp. 54-55.

204


List of Abbreviations

AFL-CIOAPAARSASCSBNACEACLCCPACPICSCDCPAEMISARIEPCESCESRESPFAXFRBFTSGNPGSAHEWHUDIRSJECLtrMCL

NDERNEANEPOCDODROEPOMBOPAPCCPIOQ&A'sRCCSPGTWXUSAICAWPI

American Federation of Labor-Congress of Industrial OrganizationsAdministrative Procedures ActAdvance Record SystemAgricultural Stabilization and Conservation ServiceBureau of National AffairsCouncil of Economic AdvisersCost of Living CouncilOffice of Congressional and Public AffairsConsumer Price IndexCivil Service CommissionDefense Civil Preparedness Agency (formerly Office of Civil Defense)Emergency Management Information System and Reference IndexExecutive Policy CommitteeEconomic Stabilization CircularEconomic Stabilization RegulationEconomic Stabilization ProgramFacsimileFederal Reserve BoardFederal Telecommunications SystemGross National ProductGeneral Services AdministrationDepartment of Health, Education, and WelfareDepartment of Housing and Urban DevelopmentInternal Revenue ServiceJoint Economic CommitteeLetterMathematics and Computation LaboratoryMessageNational Defense Executive ReserveNational Education AssociationNew Economic PolicyOffice of Civil Defense (now Defense Civil Preparedness Agency)Office of Defense ResourcesOffice of Emergency PreparednessOffice of Management and BudgetOffice of Price AdministrationPotential Court CasePublic Information OfficerQuestions and AnswersRecommended Court CaseStabilization Program Guideline (s)Teletypewriter Exchange ServiceU.S. Army Interagency Communications AgencyWholesale Price Index

205


Chronology

This chronology is designed to highlight, for quick reference,key developments bearing on the wage-price freeze within thelarger framework of the Economic Stabilization Program. Thesection of the chronology covering events before August 15, 1971concentrates on shifts in the economic climate, public opinion, andGovernment programs which led up to the announcement of theNew Economic Policy. The latter part of the chronology coverssteps taken by OEP and CLC, as well as other Governmentagencies, to implement the freeze; in addition, it includes majordevelopments leading to the establishment of the postfreeze Eco-nomic Stabilization Program.

December 23

June 17

1969

President signs the Credit Control Act of 1969,which permits him to authorize the FederalReserve Board (FRB) "to regulate and controlany or all extensions of credit" whenever hedetermines such action is "necessary or appro-priate for the purpose of preventing or con-trolling inflation."

1970

President Nixon, in an address to the Nation,announces three steps to speed up the fightagainst inflation: (1) appointing a NationalCommission on Productivity to explore meansof improving productivity and achieving "abalance between costs and productivity that willlead to more stable prices"; (2) instructing theCouncil of Economic Advisers (CEA) to pre-pare periodic "inflation alerts" calling attentionto outstanding cases of price and wage increasesand analyzing their impact on the general pricelevel; and (3) establishing a Federal Regula-tions and Purchasing Review Board to examineall government actions "to determine where

206


CHRONOLOGY

July 27

August 7

August 15

November 23

December 1

December 4

Federal purchasing and regulations drive upcosts and prices/'

Congressman Wright Patman, chairman of theHouse Banking and Currency Committee, sub-mits committee report on the Defense Produc-tion Act Extension and Economic StabilizationAct. The report cites a Gallup poll conductedin mid-June which indicated that if the questionof wage and price controls "were put to thepeople of the Nation in the form of a referen-dum . . . they would . . . vote in favor of man-datory controls."

CEA issues its first inflation alert.

The Economic Stabilization Act of 1970 is en-acted. Grants President authority "to issue suchorders and regulations as he may deem appro-priate to stabilize prices, rents, wages, andsalaries at levels not less than those prevailingon May 25, 1970."

Fifty-eight members of the Democratic StudyGroup in the House of Representatives urge thePresident to adopt wage-price guideposts and tostand ready to impose controls if guideposts failto curb inflation.

CEA issues its second inflation alert.

President, in address at 75th anniversary meet-ing of the National Association of Manufac-turers, highlights the Administration's economicplan, its results, "the problems that we stillconfront," and the prospects for the next phase.Criticizes the construction industry for its ab-normally high wage settlements and stresses theneed for change in the industry's structure ofbargaining. Calls upon business and labor tomake "a special effort to exercise restraint inprice and wage decisions" and to "stop freezinginto wage settlement and price actions any ex-pectation that inflation will continue in thefuture at its peak rate of the past."

207


CHRONOLOGY

December 7

January 12

January 14

January 22

January 29

February 1

February 23

Arthur F. Burns, Chairman, FRB, urges creationof a high-level wage and price review boardwhich would investigate cases and make recom-mendations, but lack enforcement powers.

1971

President denounces a round of price increasesby Bethlehem Steel Company; increases re-scinded a few days later.

Senator William Proxmire, Chairman, JointEconomic Committee (JEC), announces thathe will hold hearings on the economy. Currenteconomic conditions, he said, "should give usall a great feeling of urgency."

President Nixon, in his State of the Union ad-dress, presents as one of his "six great goals,""full prosperity in peacetime," with "more jobs,more income and more profits, without inflationand without war."

President's message to Congress on the FiscalYear 1972 budget includes a proposal to movefrom restrictive to more expansive economicpolicies "without losing ground in the battleagainst inflation."

President's message accompanying his annualEconomic Report to Congress cites "orderly ex-pansion" as the key to economic policy in 1971.Calls for raising total spending and total outputas rapidly as possible "to lift the economy tofull employment and full production," while atthe same time continuing to reduce the rate ofinflation.

President suspends Davis-Bacon Act, which re-quires contractors on government-financedconstruction to pay prevailing (union) wagescales.

Treasury Secretary John B. Connally tells theHouse Banking and Currency Committee thatthe Administration accepts extension of thePresident's power to impose wage-price controls

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May

May 18

June

June 29

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under bill extending Economic StabilizationAct through April 30, 1972.

JEC report on the Economic Report of thePresident finds "serious deficiencies" in the Ad-ministration's economic programs and urges thePresident to adopt a clear-cut and comprehen-sive wage-price policy, interim and long-termgoals for inflation and unemployment, andguidelines for the economy to meet the goals.

Executive Order 11588 establishes review mech-anisms for wages and prices in the constructionindustry (a Construction Industry StabilizationCommittee); Nixon rescinds February 23suspension of the Davis-Bacon Act.

Consumer Price Index (CPI) rises at annualrate of 6 percent (announced June 21, 1971).

T h e Economic Stabilization Act is extended un-til April 30, 1972; an amendment prohibits thePresident from singling out "a particular in-dustry or sector of the economy on which toimpose controls" unless he made a specific find-ing that the prices or wages in that area hadincreased at a rate grossly disproportionate tothe rate for the economy as a whole; extendsauthority of federal banking agencies to establishceilings on interest rates paid by financial in-stitutions through March 31, 1973; grantspermanent authority to the President to initiatea program of voluntary credit controls whichwould be implemented by the FRB.

CPI rises at an annual rate of 7.2 percent (an-nounced July 23, 1971).

Gallup survey finds that 50 percent of personsquestioned favor wage and price controls.

President designates Treasury Secretary Con-nally as the Administration's chief economicspokesman.

Connally announces that the President has re-jected proposals for simultaneously stimulating

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July

JulyS

July 23

July 25

July 27

July 28

August 4

August 9

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the economy and curbing inflation by means oftax cuts, spending increases, wage and pricecontrols, and creation of a wage-price reviewboard to induce moderation in private wageand price decisions.

Gallup poll finds 49 percent of persons surveyedbelieve unemployment would be higher in 6months, while only 25 percent believe it wouldbe lower.

Paul W. McCracken, Chairman of CEA, andHerbert Stein, CEA member, defend Admin-istration policies in testimony before JEC.

FRB Chairman Burns, in testimony before JEC,urges the Administration to take further stepsto control inflation.

Connally in a television interview indicates thatinternational monetary problems, inflationarywage settlements, and high interest rates mightinfluence the President to impose wage andprice controls.

Commerce Secretary Maurice H. Stans statesthat the U.S. faces the probability of a deficitin its export-import trade in 1971, the Nation'sfirst in the 20th Century.

McCracken in a newspaper column criticizesJohn Kenneth Galbraith's advocacy of wage-price controls.

Fourteen Republican Senators publicly urge thePresident to adopt wage and price restraints tobring inflation under control; 12 of the groupindicate they plan to introduce a bill creatinga wage-price board.

The President in a news conference indicatesthat he will "keep an open mind in terms ofexamining various proposals" to see if there isa new approach to stem the wage-price spiral.

AFL-CIO Executive Council restates its Feb-ruary 1966 policy of support for controls so long


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as such restraints are equitably placed on allcosts and incomes.

August 15 President Nixon addresses the Nation, announc-ing 90-day freeze on wages, salaries, prices, andrents, imposition of an imports surcharge, pro-posals for tax relief, and other economic stabili-zation measures.

Executive Order 11615 is issued, providing forthe stabilization of prices, rents, wages andsalaries and establishing a Cost of Living Coun-cil (CLC) . Amended September 2 to includethe Secretary of Housing and Urban Develop-ment (HUD) among CLC members.

Presidential Proclamation 4074 imposes a 10percent supplemental duty on imports, declaresa "national emergency,'* and calls upon the pub-lic and private sectors "to make the efforts neces-sary to strengthen the international economicposition of the United States."

Secretary Connally, at a White House pressconference, mentions the decision to delegate toOEP the responsibility for the administrativemanagement of the freeze.

George A. Lincoln, Director of OEP, expandsOEP Regions from 8 to 10, orders them to movetheir headquarters to the 10 Federal RegionalCenters and to be operational by noon, August18. (He had previously, on January 11, 1971,ordered the realignment of regional boundariesto coincide with Standard Federal Regions.)

August 16 OEP's Government Preparedness Office is trans-formed into an Operations Office. Within aweek, the reorganization of OEP for the freezeis substantially complete.

August 17 CLC delegates to the Director of OEP the au-thority to implement, administer, monitor, andenforce the freeze (CLC Order No. 1) .

Justice Department assigns to its Civil Divisionthe responsibility for handling all litigation,

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civil and criminal, arising under the EconomicStabilization Act of 1970.

CLC announces that prices on wholesale and re-tail imported goods may be increased in order topass along the supplemental duty.

August 18 Federal Reserve Board requests banks and otherfinancial institutions to continue to comply withvoluntary foreign credit restraint program.

Lincoln issues preliminary compliance and en-forcement procedures to the Regional Offices(Regional Service and Compliance Centers) ;preliminary guidance on exceptions and exemp-tions also sent to the Regions.

August 19 Director of OEP redelegates authority to theSecretary of the Treasury to establish, operate,and maintain local service and compliancecenters. These centers are to disseminate in-formation, receive, evaluate, and investigatecomplaints, and enforce the program (OEPEconomic Stabilization Order 1) .

Secretary of the Treasury charges the taxpayerassistance network of the Internal RevenueService (IRS) with the operation of these localservice and compliance centers.

Lincoln arranges for the county offices of theAgricultural Stabilization and ConservationService (ASCS) to function as informationcenters.

CLC Chairman Connally urges financial institu-tions to hold down interest rates.

Secretary of the Treasury issues a preliminarydefinition of articles exempt from the 10 percentduty.

AFL-CIO Executive Council formally proclaimsits opposition to the President's economicmeasures.

Director of the Federal Mediation and Con-ciliation Service asks for the full cooperation of

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labor and management to end all strikes andlockouts for the duration of the 90-day freeze.

August 20 OEP issues its Economic Stabilization Regula-tion 1, setting forth initial guidance and pro-cedures for the implementation of the EconomicStabilization Program. Raw agricultural prod-ucts, stocks and bonds, school tuitions, andexports are excepted categories (tuitions re-moved from this list on August 23).

Commissioner of Internal Revenue Servicedelegates to IRS field offices authority to estab-lish, operate, and maintain local service andcompliance centers.

Federal Regulations and Purchasing ReviewBoard issues statement on the use of "govern-ment purchasing power'' to support the 90-dayfreeze.

Defense Department announces its requirementsfor certification of compliance by contractors.

OEP Press Release gives instructions on theform of exemption requests.

August 23 Ten thousand copies of the newly printedStabilization Program Guidelines (SPG) areready for distribution to government officialsand field offices involved in economic stabiliza-tion activities.

Four Catholic University law professors file suitin U.S. District Court for the District of Colum-bia, challenging the constitutionality of the90-day freeze.

Lincoln instructs OEP Regional Directors touse their Regional Economic Stabilization Com-mittees as sources of information on the pro-gram's acceptance and problem areas.

August 24 Distribution is begun of 10 million copies of abooklet on the most frequently asked questionson the freeze.

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August 25 Lincoln requests IRS to institute a spot-checkmonitoring system under the general directionof OEP, in addition to its responsibilities fordisseminating information and for enforcingcompliance.

FRB Chairman Burns asks banks to furnish in-formation on interest rates; includes form onwhich rates are to be reported.

OEP announces the first denials of requests forexemptions.

August 26 Lincoln clarifies the effective dates of the baseperiod, the beginning and the end of the freeze,and the special status of August 15.

CLC releases a summary of its decisions to dateon teachers' salaries.

August 27 At the requests of the US Commissioner ofEducation, OEP releases supplementary guid-ance on teachers' salaries and further explana-tion of CLC summary of its decisions on thesubject.

OEP Operations Center discontinues its tele-phone answering service for public calls.

General guidance sent to the OEP RegionalOffices on public information activity and co-ordination with IRS in this area.

August 28 Press briefing given by Arnold R. Weber, CLCExecutive Director, and other government offi-cials, on the seasonality rule and other aspectsof the wage-price freeze; the seasonality ruleallowed certain seasonal price increases duringthe freeze.

CLC press release addresses issues of seasonalityand wage and salary contracts in the field ofeducation as decided by the Council.

August 30 McCracken, Weber, and Lincoln testify beforethe Joint Economic Committee of the Congresson the President's New Economic Policy.

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OEP Regional Service and Compliance Centersredesignated "OEP Regional Offices."

August 31 President asks Congress to support a delay inpay increases for Federal employees until July1972.

August-September JEC holds hearings on the Administration'sNew Economic Policy.

September 1 Lincoln, Weber, and Charls Walker, UnderSecretary of the Treasury, brief the House andSenate on the Economic Stabilization Program.

Treasury Department announces an exemptionfrom the 10 percent duty for all goods whichhad left foreign ports before August 16; previ-ously, only articles imported into the U.S. be-fore August 16 had been ruled exempt.

September 2 OEP press releases covering denials of exemp-tion requests begin to include the names ofpersons and companies (policy terminated Octo-ber 9 when the Executive Policy Committeedecides it is better to release only statistics).

A transaction is defined as taking place ''whenthe seller ships the product to the buyer, notwhen the order is received. In the case of aservice, the transaction takes place when theservice is performed." (Economic StabilizationCircular 7)

September 3 Weber gives a news briefing designed to clarifyCLC policy on teachers' salaries.

Commerce Secretary Stans sends wires to 1,250corporations asking them to affirm their willing-ness to comply with the voluntary freeze ondividends.

McCracken sends telegrams to six companiessuspected of raising dividends.

OEP Regional Directors receive from Lincolnauthority to deny requests for exemptions, butnot to grant exemptions.

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September 9

September 10

September 13

September 14

September 15

September 16

216

OEP National Office guidance to the field net-work clarifies the relationships and defines themissions of the field offices of OEP, IRS, andASCS.

President addresses a joint session of Congress,seeking cooperation in achieving "a new pros-perity without war and without inflation;" an-nounces that the freeze will not be extendedbeyond the 90 days, but that he will take "allthe steps needed to see that America is not againafflicted by the virus of runaway inflation."

CLC announces that the freeze prohibits in-creases in prices of tickets for sporting eventsand other entertainments occurring during thefreeze, even when the tickets were sold beforethe freeze.

General Services Administration issues FederalProcurement Regulations advising heads ofFederal agencies how to comply with the freezein making purchases.

Amalgamated Meat Cutters and Butcher Work-ingmen file complaint in U.S. District Court forthe District of Columbia against CLC and eightmeatpacking companies challenging the con-stitutionality of the freeze.

Lincoln formally establishes the OEP Speakers'Bureau.

Labor Secretary J. D. Hodgson states that thefreeze should not be interpreted as a mora-torium on collective bargaining or as an effort todiscourage settlements.

Labor Department issues Memorandum No.100 to all Government contracting agencies onthe impact of the freeze on wage determinationsunder the Davis-Bacon Act and related acts andthe Service Contract Act.

OEP issues definitive clarification on teachers'salaries.


September 21

September 23

September 24

September 25

September 27

September 28

September 29

September 30

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Lincoln asks 137 National Defense ExecutiveReservists to participate in the Speakers' Pro-gram.

Lincoln briefs the heads of the Washingtonoffices of the six principal organizations of Stateand local officials on the freeze program.

OEP issues Economic Stabilization Circular 101,a compilation superseding Economic Stabiliza-tion Circulars 1 through 10.

Justice Department files first freeze suit againstthe Jefferson Parish, Louisiana, School Boardfor raising teachers* salaries.

U.S. Savings and Loan League issues statementpledging voluntary support of their 5,000 mem-ber institutions to hold the line on mortgageinterest rates.

National Education Association and affiliatesfile complaint for declaratory judgment and in-junctive relief against CLC and others in U.S.District Court for the District of Columbia.

Justice files a suit against Dwight L. Lieb foralleged rent violations.

Guidance issued requiring merchants to haveceiling price lists available for inspection by thecustomer.

Justice files a suit against Atlanta Falcons foralleged violation on ticket prices.

Justice files a suit against Jack L. Joyce foralleged rent violations.

OEP announces the first three exemptions fromthe freeze, allowing group insurance programsdesigned to replace previous group policies togo into effect in Florida, Texas, and Missouri.

Justice files a suit against Martin J. DeStefanofor alleged rent violations.

Connally addresses the Joint Meeting of theWorld Bank and International Monetary Fund;

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urges floating exchange rates and dismantlingbarriers to trade.

October 1 CLC announces that the Justice Departmentwill include the Orleans Parish, Louisiana,School Board in suit against Jefferson Parish onteachers' salary increases.

October 6 CLC announces that Connecticut General LifeInsurance Company of Hartford has rolled backthe premium rates of its group insurancepolicies in order to comply with the freeze.

October 7 President in a radio and T V address to theNation unveils Phase II of his New EconomicPolicy to go into effect after November 13.

Commerce Department announces that it hasreceived agreement from 1,250 of the largestAmerican business firms not to raise their divi-dend rates.

Decision is rendered against the Government inthe teachers' salary suit against Jefferson Parishand Orleans Parish.

Statement on the respective roles of CLC, thePay Board, and the Price Commission is ini-tialed by the President on October 11. Afterthe President approves the statement, AFL-CIOofficials agree, on October 12, to serve on thePay Board. Union states that it will establishwatchdog units to monitor prices.

October 13 An exemption is granted to Cresco, Iowa, forincreased sewer and water rates to meet the costof new sewage disposal plant that is under con-struction.

October 14 U.S. wins the Joyce rent suit; landlord orderedto roll back rents to the base period level andto refund excess amounts he had collected.

New guidance sets deadline of November 1 forceiling price lists to be available for public in-spection at the point of sale and offers alter-

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October 11-12


CHRONOLOGY

native method of complying with price listrequirement by posting signs in stores andmaking available request forms that customersmay use to obtain ceiling price information onspecific items.

OEP states that the freeze applies to fuel oilprices; however, low sulfur oil may be priced asa "new product" when introduced into newmarket areas.

October 15 Executive Order 11627 establishes Pay Board,Price Commission, and other structures foradministering Phase II of the Economic Sta-bilization Program; stipulates that all existingprovisions of the program will remain in effectuntil specifically modified by the Pay Board,Price Commission, or CLC.

October 18 Justice Department files a suit against HuberInvestment Co. for alleged rent violations.

October 19 The Administration's proposed legislation toextend and expand the President's economicstabilization authority is sent to Congress.

CLC announces that IRS is investigating com-plaints that seven major oil companies hadillegally raised prices on propane gas.

October 20 CLC announces rollback of propane gas pricesby Wanda Petroleum Company; other com-panies soon follow.

Committee on Interest and Dividends an-nounces that it expects all lenders to assembleand keep on file their schedule of lending rateson August 15 and thereafter.

October 22 U.S. wins the DeStefano rent case.

A three-judge panel, chaired by Judge HaroldLeventhal, finds that the Economic StabilizationAct and Executive Order 11615 are fully con-stitutional. (Amalgamated Meat Cutters andButcher Workingmen v. Connolly et al). Thespecial court rejected the union's argument that

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the 1970 statute was a "blank check" to thePresident allowing him to impose "controlsbeyond the initial freeze . . . without any stan-dard other than the President's unfettered dis-cretion including the discretion to be unfairand inequitable."

President announces the appointment of thechairmen and members of the Pay Board andPrice Commission.

Arnold Weber resigns as Executive Director ofCLC and agrees to serve as a public member ofthe Pay Board. Edgar Fiedler to serve as CLCDeputy Director until the end of the freeze.Donald Rumsfeld, Counselor to the President,to be CLC Director for Phase II .

OEP issues Circular 102 which compiles andsupersedes Circulars 11 to 20.

October 27 Patman opens hearings of the House Bankingand Currency Committee on Administration'sproposed economic stabilization legislation.

CLC drops the November 1 deadline for theavailability of ceiling price lists but retains therequirement that one of the two methods an-nounced on October 14 be employed. IRS toconduct special survey to determine availabilityof ceiling price information in stores across theNation.

October 28 T o end public confusion, CLC reiterates previ-ous announcement that the regulations and pro-visions of the freeze continue in effect untilspecifically modified by Phase II agencies.

President tells a National Association of Manu-facturers teleconference on economic stabiliza-tion that the freeze has been "extraordinarilysuccessful." Predicts the same high marks forPhase II program.

November 2 Justice files a suit against Intone Corporation,Lubbock, Texas, for alleged rent violations.

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November 4

November 8

November 10

November 11

November 12

November 13

Committee on Interest and Dividends puts a 4percent ceiling on increases in dividends to bepaid in 1972.

An exemption is granted to West DaviessCounty Water District, Owensboro, Kentucky,for increased water rates.

House Banking and Currency Committee votesto include in the extension of the EconomicStabilization Act the requirement that mostwage increases covered by contracts made beforethe freeze be paid retroactively.

Pay Board announces its general policies govern-ing pay adjustments in Phase II .

CLC announces its decisions for implementingthe Phase II program; includes the three-tierclassification system and excepted categories.

CLC reverses its policies on vacation benefitsand stock options.

Suit filed against Oklahoma City School Boardfor raising teacher salaries.

Price Commission announces its Phase IIpolicies.

President appoints the chairmen and membersof the Committee on the Health Services In-dustry and the Committee on State and LocalGovernment Cooperation, both committees tofunction as advisory panels to CLC, the PayBoard, and the Price Commission.

IRS issues statement on its administrative andenforcement role in the postfreeze program.

Donald Rumsfeld, acting for CLC, delegatesauthority to the Secretary of the Treasury toadminister and enforce the Economic Stabiliza-tion Program during Phase II, subject to thegeneral policy guidance of CLC. Director ofOEP to continue to exercise responsibility andauthority as necessary to effectuate an orderly

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transfer of functions to Pay Board and PriceCommission.

November 14 Phase II begins.*

* Some events occurring in Phase II are of special interest to the Phase I story,for example: November 22, President creates the Rent Advisory Board to adviseand assist the Price Commission; designates its membership the following day.December 18, major industrial nations (Group of Ten) reach agreement on a generalrealignment of currencies. December 20, the President announces the terminationof the import surcharge. December 22, the Economic Stabilization Act Amendmentsof 1971 are enacted (see Exhibit 11) . January 10, 1972, CLC announces that it willdisclose names of some violators consistent with the public's need to know whetherthe postfreeze controls are working fairly. January 13, Pay Board announces it ispermitting most retroactive wage payments. March 7, Justice Department files suitagainst Robert Dedoes over alleged rent violation that occurred during Phase I.

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Exhibits


EXHIBITS

EconomicStabilizationAct of 1970.Standby-controls.

84 STAT. 799

EXHIBIT 1

Public Law 91-37991st Congress, S. 3302

August 15, 1970

To amend the Defense Production Act of 1950, and for other purposes.

Be it enacted by the Senate and House of Representatives of theUnited States of America in Congress assembled,

TITLE I—DEFENSE PRODUCTION ACT AMENDMENTS

tt * *

TITLE II—COST OF LIVING STABILIZATION

§201. Short titleThis title may be cited as the "Economic Stabilization Act of 1970".

§ 202. Presidential authorityThe President is authorized to issue such orders and regulations as

he may deem appropriate to stabilize prices, rents, wages, and salariesatjevels not less than those prevailing on May 25, 19(0. Such orders

84 STAT. 800 and regulations may provide for the making of such adjustments asmay be necessary to prevent gross inequities.§203. Delegation

The President may delegate the performance of any function underthis title to such officers, departments, and agencies of the UnitedStates as he may deem appropriate.§204. Penalty

Whoever willfully violates any order or regulation under this titleshall be fined not more than $5,000.§205. Injunctions

Whenever it appears to any agency of the United StateSj authorizedby the President to exercise the authority contained in this section toenforce orders and regulations issued unaer this title, that any personhas engaged, is engaged, or is about to engage in any acts or practicesconstituting a violation of any regulation or order under this title, itmay in its discretion bring an action, in the proper district court of theUnited States or the proper United States court of any territory orother place subject to the jurisdiction of the United States, to enjoinsuch acts or practices, and upon a proper showing a permanent ortemporary injunction or restraining order shall be granted withoutbond. Upon application of the agency, any such court may also issuemandatory injunctions commanding any person to comply with anyregulation or order under this title,§206. Expiration

The authority to issue and enforce orders and regulations under thistitle expires at midnight February -28, 1J)71, but such expiration shallnot affect any proceeding under section 204 for a violation of any suchorder or regulation, or for the punishment for contempt committed inthe violation of any injunction issued under section 205, committedprior to March 1,1971.

Approved August 15, 1970.

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EXHIBIT 2 EXHIBITS

EXECUTIVE ORDER 11588, PROVIDING FOR THE STABILIZATION OF WAGES AND

PRICES IN THE CONSTRUCTION INDUSTRY

Whereas, the stabilization of wages and prices in the construction industry isessential to the maintenance of a strong national economy; and

Whereas, wages and prices in the construction industry have tended in recentyears to increase at a rate greater than that for the economy as a whole; and

Whereas, the Congress has expressed its concern over the unrestrained rise in wagesand prices through the enactment of the Economic Stabilization Act of 1970 (84 Stat.799 as amended) ; and

Whereas, it was necessary to suspend the prevailing rate provisions of the Davis-Bacon Act in order to assist in alleviating the inflationary spiral of wages and pricesin the construction industry, which suspension is no longer required due to the estab-lishment of an equitable stabilization plan under this order; and

Whereas, the national leaders of labor and management in the construction in-dustry have indicated, since the suspension of the Davis-Bacon Act, that under suchan order they will participate with the Government in fair measures to achievegreater wage and price stability; but are unable to agree on any voluntary arrange-ment; and

Whereas, stabilization of wages and prices is most effectively achieved when accom-panied by positive action of labor and management; and

Whereas, this order is required to establish an arrangement for the application ofgeneral criteria by an operating structure with a minimum of Government involve-

ment and sanctions within which labor and management may act to effectuate thestabilization of wages and prices consistent with and in furtherance of effective col-lective bargaining: in the industry.

Now, therefore, by virtue of the authority vested in me by the Economic Stabiliza-tion Act of 1970 (84 Stat. 799 as amended) and as President of the United States,it is ordered as follows:

SECTION. 1. (a) A Construction Industry Stabilization Committee (hereinafterreferred to as "Committee") is hereby established to assure generally conformance ofany increase in any wage or salary in the construction industry to the provisions ofthis order.

(b) The Committee shall be composed of 12 members appointed by the Secretaryof Labor and selected as follows: four of the members shall be representative of labororganizations in the construction industry; four of the members shall be representa-tive of employers in the construction industry; and four of the members shall berepresentative of the public. The Secretary of Labor shall appoint one of the publicmembers as chairman of the committee.

SEC. 2. Associations of contractors and national and international unions shalljointly establish craft dispute board (hereinafter referred to as "boards") to deter-mine whether wages and salaries are acceptable in accordance with the criteria estab-lished in section 6. Each board shall be composed of appropriate labor and manage-ment representatives.

SEC. 3. (a) It shall be the responsibility of each board, in relation to the craft orbranch over which it has jurisdiction, to provide advice and assistance in an effort toresolve any unresolved collective bargaining disputes involving wages and salaries andto promptly examine every collective bargaining agreement negotiated on or afterthe date of this order and to determine, in accordance with the criteria established insection 6, whether wage and salarv increases in the agreement are acceptable and mavthus be approved. The board shall make determinations within a reasonable time andshall notifv the parties and the Committee of action taken. When it is determined bythe board that a wage or salary increase is not acceptable, the board shall also notifythe Secretary of Labor.

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(b) Each board shall also have the authority to examine collective bargaining agree-ments negotiated prior to the date of this order which contain wage or salary increasesscheduled to take effect on or after such date to determine whether any increase is un-reasonably inconsistent with the criteria established in section 6.

SEC. 4. (a) Upon receipt of a notification by a board that it has found a wage orsalary increase acceptable, the Committee shall have 15 days in which to determinewhether it will assume jurisdiction over the matter. If the Committee does notdetermine within that time, and so notify the parties and the board, that it willassume jurisdiction, the board's determination will be deemed final and the increasemay take effect. If the Committee determines that it will assume jurisdiction it shallbe a violation of this order to implement the increase unless and until the Committeeaffirms the board's initial determination. The Committee shall notify the parties, theboard and the Secretary of Labor of its final action.

(b) The Committee is also authorized, upon its own motion, if a board has notyet reported or an appropriate board has not been established, to review any proposedwage or salary increase to determine its acceptability.

(c) Unless and until an increase in wage or salary has been approved in accordancewith the provisions of sections 3(a) and 4 of this order, it shall be a violation of thisorder to put such a wage or salary increase into effect.

SEC. 5. Upon a determination by a board or the Committee that a proposed wageor salary increase is not acceptable and certification of that determination by theSecretary of Labor, the following actions shall be taken:

(a) In implementing the provisions of the Davis-Bacon Act of March 3, 1931 (46Stat. 1494, as amended), and related statutes the provisions of which are dependentupon determinations by the Secretary of Labor under the Davis-Bacon Act, and includ-ing State statutes or laws requiring similar wage standards, the Secretary of Laborand all States shall not take into consideration any wage or salary increase in excessof that found to be acceptable in making determination under that act and relatedstatutes.

(b) In order to assure that unacceptable wage rates shall not be utilized inFederal or federally related construction, the heads of all Federal departments andagencies, subject to the direction and coordination of the Secretary of Labor:

(1) Shall review all plans for construction and financial assistance for con-struction in localities in which wage or salary increases have been certified by theSecretary of Labor to be unacceptable and shall, on the basis of that review,determine whether such plans can be approved or continued; and

(2) Shall review current and prospective construction contracts for Federalconstruction and for construction on projects receiving Federal financial assist-ance in the area affected by a certification by the Secretary of Labor and shall,on the basis of such review, determine whether such contracts can be awardedor continue.

(c) The Committee and the boards shall make public their determinations, specify-ing the craft and area affected and the wages or salaries deemed unacceptable.

(d) Any other action authorized by law to carry out the purposes and policy ofthis order shall be available to the Secretary of Labor to assure the stabilization ofwages and prices in the construction industry.

SEC. 6. The following criteria shall be applied in determining whether any wageor salary increase is acceptable:

(a) Acceptable economic adjustments in labor contracts negotiated on or after thedate of this order will be those normally considered supportable by productivityimprovement and cost of living trends, but not in excess of the average of the medianincreases in wages and benefits over the life of the contract negotiated in majorconstruction settlements in the period 1961 to 1968.

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EXHIBITS

(b) Equity adjustments in labor contracts negotiated on or after the date of thisorder may, where carefully identified, be considered over the life of the contract torestore traditional relationships among crafts in a single locality and within the samecraft in surrounding localities.

SEC. 7. The parties to a labor contract negotiated in the construction industryshall promptly submit that contract to the appropriate board or boards. Where thereis no appropriate board to consider the acceptability of a proposed wage or salaryincrease, the affected national or international union, and the affected association ofcontractors shall promptly submit that contract to the Committee.

SEC. 8. The Interagency Committee on construction (hereinafter referred to as"Interagency Committee"), is hereby established to develop criteria for the determina-tion of acceptable prices in construction contracts as well as criteria for acceptablecompensation, including bonuses, stock options and the like. Officers and employees ofFederal departments and agencies shall be designated to serve as members of the Inter-agency Committee by the Secretary of Housing and Urban Development who shallalso designate its chairman. The Interagency Committee shall consult with the Secre-tary of Labor, with major Government procurement agencies and with the Com-mittee in developing such criteria and concerning the application of such criteria.Until criteria have been developed and applied and prices and compensation aredetermined to be unacceptable, prices, and compensation shall not be deemed inviolation of this order.

SEC. 9. In the conduct of every Federal or federally assisted construction projector program the affected Federal agency shall assure the conformance of such projector program with the criteria established in section 8.

SEC. 10. The Committee and the Interagency Committee, subject to approval bythe Secretary of Labor, and the Secretary of Labor are authorized to issue suchrules and regulations as may be necessary to provide for the expeditious and effectiveconduct of their responsibilities under this order and to effectuate its purposes. Suchauthority of the Committee under this section shall include the authority to issuesuch rules and regulations as may be necessary to assure the effective operationof any board which may be established under this order, and to provide for the resolu-tion of impasses within any board.

SEC. 11. (a) The term "construction" shall mean, for the purpose of this order(1) all work relating to the erecting, constructing, altering, remodeling, painting,or decorating of installations such as buildings, bridges, highways and the like, whenperformed on a contract basis, but shall not include maintenance work performed byworkers employed on a permanent basis in a particular plant or facility for the pur-pose of keeping such plant or facility in efficient operating condition; (2) the trans-porting of materials and supplies to or from a particular building or project by theworkers of the contractor or subcontractor performing the constuction or the manu-facturing of materials, supplies, or equipment on the site of a project by such work-ers; and (3) all other work classified as construction in section 5.2(g) of part 5,title 29 of the Code of Federal Regulations.

(b) The term "wage or salary" shall mean, for the purpose of this order, all wageor salary rate schedules and economic benefits established pursuant to a collectivebargaining agreement in the construction industry.

SEC. 12. (a) Expenses of the Committee and the Interagency Committee shallbe paid from such appropriations to the Department of Labor and other Federalagencies as may be made available therefor.

(b) All departments and agencies of the Federal Government are authorized anddirected to cooperate with the Committee and the Interagency Committee in orderthat they may carry out their responsibilities under this order.

SEC. 13. There shall be periodic examination of the effectiveness of this order to

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determine whether further measures will be required to effectuate a stabilization ofwages and prices in the construction industry.

SEC. 14. This order shall be effective immediately.RICHARD NIXON.

EXHIBIT 3

Public Law 92-1592nd Congress, H. R. 4246

May 18. 1971

85 STAT. 38To extend certain laws relating to the payment of interest on time and saYingg

deposits and economic stabilization, and for other purposes.

Be it enacted by the Senate and House of Representatives of theUnited States of America in Congress assembled,

EXTENSION OF AUTHORITY FOR THE FLEXIBLE REGULATION OF INTERESTRATES ON DEPOSITS AND SHARE ACCOUNTS IN FINANCIAL INSTITUTIONS

Interest ratesand oost-pf-living stabili-zation.Extension.

SECTION 1. Section 7 of the Act of September 21, 1966, as amended(Public Law 91-151; Public Law 92-8), is amended by striking out Ante, p. 13."1971" and inserting in lieu thereof "1973".

REMOVAL OF TIME LIMITATION ON THE AUTHORITY OF THE PRESIDENT TOAPPROVE CERTAIN VOLUNTARY AGREEMENTS

SEC. 2. The first sentence of section 717(a) of the Defense Produc-tion Act of 1950 (50 U.S.C. App. 2166(a)) is amended by striking out 84 stat. 796."714 and 719" and inserting in lieu thereof "708,714, and 719".

PRICE AND WAGE CONTROLS

SEC. 3. (a) Section 202 of the Economic Stabilization Act of 1970(Public Law 91-379) is amended—

(1) by inserting " (a)" before the text of such section; and(2) by adding at the end thereof a new subsection as follows:

u(b) The authority conferred on the President by this section shallnot be exercised with respect to a particular industry or segment of theeconomy unless the President determines, after taking into account theseasonal nature of employment, the rate of employment or underem-ployment, and other mitigating factors, that prices or wages in thatindustry or segment of the economy have increased at a rate w^ich isgrossly disproportionate to the rate at which prices or wages haveincreased in the economy generally."

(b) Section 206 of such Act is amended by striking out "May 31, Ante, p. 13*1971" and "June 1, 1971" and inserting in lieu thereof "April 30,1972" and "May 1,1972", respectively.

A p p r o v e d May 18, 1971 .

84 Stat. 799.12 USC 1904note.

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EXHIBIT 4

T H E PRESIDENT

EXECUTIVE ORDER 11615

PROVIDING FOR STABILIZATION OF PRICES, RENTS, WAGES, AND SALARIES

WHEREAS, in order to stabilize the economy, reduce inflation, and minimizeunemployment, it is necessary to stabilize prices, rents, wages, and salaries; and

WHEREAS, the present balance of payments situation makes it especially urgentto stabilize prices, rents, wages, and salaries in order to improve our competitiveposition in world trade and to protect the purchasing power of the dollar:

NOW, THEREFORE, by virtue of the authority vested in me by the Constitu-tion and statutes of the United States, including the Economic Stabilization Act of1970 (Public Law 91-379, 84 Stat. 799), as amended, it is hereby ordered as follows:

SECTION 1. (a) Prices, rents, wages, and salaries shall be stabilized for a periodof 90 days from the date hereof at levels not greater than the highest of those per-taining to a substantial volume of actual transactions by each individual, business,firm or other entity of any kind during the 30-day period ending August 14, 1971,for like or similar commodities or services. If no transactions occurred in that period,the ceiling will be the highest price, rent, salary, or wage in the nearest preceding30-day period in which transactions did occur. No person shall charge, assess, orreceive, directly or indirectly in any transaction prices or fents in any form higherthan those permited hereunder, and no person shall, directly or indirectly, pay oragree to pay in any transaction wages or salaries in any form, or to use any meansto obtain payment of wages and salaries in any form, higher than those permittedhereunder, whether by retroactive increase or otherwise.

(b) Each person engaged in the business of selling or providing commodities orservices shall maintain available for public inspection a record of the highest pricesor rents charged for such or similar commodities or services during the 30-day periodending August 14, 1971.

(c) The provisions of sections 1 and 2 hereof shall not apply to the prices chargedfor raw agricultural products.

SEC. 2. (a) There is hereby established the Cost of Living Council which shall actas an agency of the United States and which is hereinafter referred to as the Council.

(b) The Council shall be composed of the following members: The Secretary of theTreasury, the Secretary of Agriculture, the Secretary of Commerce, the Secretary ofLabor, the Director of the Office of Management and Budget, the Chairman of theCouncil of Economic Advisers, the Director of the Office of Emergency Preparedness,and the Special Assistant to the President for Consumer Affairs. The Secretary of theTreasury shall serve as Chairman of the Council and the Chairman of the Council ofEconomic Advisers shall serve as Vice Chairman. The Chairman of the Board of Gov-ernors of the Federal Reserve System shall serve as adviser to the Council.

(c) Under the direction of the Chairman of the Council a Special Assistant to thePresident shall serve as Executive Director of the Council, and the Executive Directoris authorized to appoint such personnel as may be necessary to assist the Council in theperformance of its functions.

SEC. 3. (a) Except as otherwise provided herein, there are hereby delegated to theCouncil all of the powers conferred on the President by the Economic StabilizationAct of 1970.

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(b) The Council shall develop and recommend to the President additional policies,mechanisms, and procedures to maintain economic growth without inflationary in-creases in prices, rents, wages, and salaries after the expiration of the 90-day periodspecified in Section 1 of this Order.

(c) The Council shall consult with representatives of agriculture, industry, laborand the public concerning the development of policies, mechanisms and procedures tomaintain economic growth without inflationary increases in prices, rents, wages, andsalaries.

(d) In all of its actions the Council will be guided by the need to maintain con-sistency of price and wage policies with fiscal, monetary, international and other eco-nomic policies of the United States.

(e) The Council shall inform the public, agriculture, industry, and labor concern-ing the need for controlling inflation and shall encourage and promote voluntary actionto that end.

SEC. 4. (a) The Council, in carrying out the provisions of this Order, may (i) pre-scribe definitions for any terms* used herein, (ii) make exceptions or grant exemptions,(iii) issue regulations and orders, and (iv) take such other actions as it determines tobe necessary and appropriate to carry out the purposes of this Order.

(b) The Council may redelegate to any agency, instrumentality or official of theUnited States any authority under this Order, and may, in administering this Order,utilize the services of any other agencies, Federal or State, as may be available andappropriate.

(c) On request of the Chairman of the Council, each Executive department oragency is authorized and directed, consistent with law, to furnish the Council withavailable information which the Council may require in the performance of itsfunctions.

(d) All Executive departments and agencies shall furnish such necessary assistanceas may be authorized by section 214 of the Act of May 3, 1945 (59 Stat. 134; 31U.S.C. 691).

SEC. 5. The Council may require the maintenance of appropriate records or otherevidence which are necessary in carrying out the provisions of this Order, and mayrequire any person to maintain and produce for examination such records or otherevidence, in such form as it shall require, concerning prices, rents, wages, and salariesand all related matters. The Council may make such exemptions from any requirementotherwise imposed as are consistent with the purposes of this Order. Any type of recordor evidence required under regulations issued under this Order shall be retained forsuch period as the Council may prescribe.

SEC. 6. The expenses of the Council shall be paid from such funds of the TreasuryDepartment as may be available therefor.

SEC. 7. (a) Whoever willfully violates this Order or any order or regulation issuedunder authority of this Order shall be fined not more than $5,000 for each suchviolation.

(b) The Council shall in its discretion request the Department of Justice to bringactions for injunctions authorized under Section 205 of the Economic StabilizationAct of 1970 whenever it appears to the Council that any person has engaged, is en-gaged, or is about to engage in any acts or practices constituting a violation of anyregulation or order issued pursuant to this Order.

RICHARD NIXON.T H E WHITE HOUSE,

August 15, 1971.

NOTE.—For the text of the President's radio and television address in connection withE.O. 11615, above, see Weekly Comp. of Pres. Docs., Vol. 7, No. 34. issue of Aug. 23, 1971.Amended by Executive Order 11617 of September 2, 1971, to add the Secretary ofHousing and Urban Development to the membership of the Cost of Living Council.

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EXHIBIT 5COST OF LIVING COUNCIL ORDER NO. I

Pursuant to the authority vested in the Council by section 4 of Executive OrderNo. 11615 (hereinafter referred to as the order), it is hereby ordered as follows:

1. There is hereby delegated to the Director, Office of Emergency Preparedness(hereinafter referred to as the Director), responsibility and authority to implement,administer, monitor, and enforce the stabilization of prices, rents, wages, and salariesas directed by section 1 of the order.

2. There is hereby delegated to the Director the authority vested in the Councilby sections 4(a), 5, and 7 of the order.

3. All executive departments and agencies shall furnish such necessary assistanceto the Director as may be authorized by section 214 of the Act of May 3, 1945, 59Stat. 134(31 U.S.C. 691).

4. Significant policy decisions shall be made only after consultation with theCouncil.

5. The Director may redelegate to any agency, instrumentality, or official of theUnited States any authority under this order, and may, in carrying out the functionsdelegated to it by this order, utilize the services of any other agencies, Federal orState, as may be available and appropriate.

By direction of the Council.[SEAL] JOHN B. CONNALLY,

Chairman.AUGUST 17, 1971.

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EXHIBIT 6OFFICE OF EMERGENCY PREPAREDNESS

ECONOMIC STABILIZATION ORDER NO. 1

By virtue of the authority vested in the Director of the Office of Emergency Pre-paredness by section 5 of Cost of Living Council Order No. 1, it is hereby ordered asfollows:

SECTION 1. Purpose. The purpose of this order is to delegate to the Secretary of theTreasury, hereinafter referred to as the Secretary, certain administrative and operatingfunctions relating to the implementation of the program providing for stabilization ofprices, rents, wages, and salaries pursuant to Executive Order 11615 of August 15,1971. The Secretary shall, in carrying out said functions, provide by redelegation orotherwise for their performance.

SEC. 2. Functions delegated. There is hereby delegated to the Secretary the respon-sibility and authority for the establishment, operation and maintenance of localservice and compliance centers established in support of the economic stabilizationprogram in Standard Metropolitan Statistical Areas and such other places as the Sec-retary may determine. The functions to be exercised through these centers will in-clude but not be limited to the following:

a. Dissemination of information and guidance to the public;b. Receipt, analysis, and evaluation of complaints received with respect to program

violations;c. Subject to the general policy guidance and coordination of the Director of the

Office of Emergency Preparedness, or his designee, the investigation, compliance, andenforcement of the stabilization of prices, rents, wages and salaries as directed bysection 1 (a) of Executive Order No. 11615.

SEC. 3. Effective date. This Order is effective the date of issuance.Dated: August 19, 1971.

; G. A. LINCOLN,Director, Office of Emergency Preparedness.

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EXHIBIT 7TREASURY DEPARTMENT ORDER NO. 150-75

Delegation of Authority

The authority delegated to the Secretary of the Treasury by Office of EmergencyPreparedness Order 1 of August 19, 1971, is hereby redelegated to the Commissionerof Internal Revenue. The Commissioner may redelegate this authority to any officeror employee of the Internal Revenue Service.

Under the terms of Section 4<d) of Executive Order 11615 of August 15, 1971,all Treasury bureaus and organizations are available to assist Internal RevenueService in carrying out the responsibilities assigned by this delegation.

John B. ConnallySecretary of the Treasury

Date: August 19, 1971

EXHIBIT 8

INTERNAL REVENUE SERVICE ORDER NO. 117

SUBJECT Implementation of the Program Providing for Stabilization of Prices,Rents, Wages and Salaries

The authority delegated to the Secretary of the Treasury by OEP EconomicStabilization Order No. 1, dated August 19, 1971, and redelegated to the Commis-sioner of Internal Revenue by Treasury Department Order No. 150-75, dated August19, 1971, is hereby redelegated to Regional Commissioners, District Directors, andService Center Directors, as follows:

/. Responsibility and authority for the establishment, operation and maintenanceof local service and compliance centers established in support of the economicstabilization program in Standard Metropolitan Statistical Areas and such otherplaces as they may determine. The functions to be exercised through these centersWill include but not be limited to the following:

(a) Dissmination of information and guidance to the public;(b) Receipt, analysis, and evaluation of complaints received with respect td

program violations; and(c) Subject to the general policy guidance and coordination of the Director of

the Office of Emergency Preparedness, or his designee. the investigation, compliance,and enforcement of the stabilization of prices, rents, wages, and salaries as directedby Section 1 (a) of Executive Order 11615 of August 15, 1971.

2. The authority to establish local service and compliance centers may not beredelegated. All other authority delegated by this Order may be redelegated.

3. Under the terms of Section 4(d) of Executive Order 11615 and TreasuryDepartment Order No. 150-75. all Treasury Bureaus and organizations are availableto assist the Internal Revenue Service in carrying out the responsibilities assignedby this Order.

Johnnie M. WaltersCommissioner

Date: August 20, 1971

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EXHIBIT 9

OFFICE OF EMERGENCY PREPAREDNESSECONOMIC STABILIZATION REGULATION NO. 1

Sec.1 Purpose.2 Prohibition.3 Guidance.4 Exemptions.5 Imports.6 Definitions.7 Administration.8 Record keeping.9 Applicability.

10 Violations and penalties.11 Information.

AUTHORITY: Sections 1 to 11 issued under the Economic Stabilization Act of 1970,as amended, Public Law 91-379, 84 Stat. 799; Public Law 91-558, 84 Stat. 1468;Public Law 92-8, 85 Stat. 13, Public Law 92-15, 85 Stat. 38; Executive Order No.11615, 36F.R. 15127, Aug. 17, 1971, Cost of Living Council Order No. 1.

Section 1 Purpose.

The purpose of this regulation is to promulgate initial guidance and proceduresfor implementing the stabilization of prices, rents, wages, and salaries in accordancewith the provisions of Executive Order No. 11615 of August 15, 1971. It is expectedthat all persons will voluntarily comply with the provisions of the Executive order andall regulations, circulars, and orders issued thereunder.

Sec. 2 Prohibition

(a) No person may charge, assess or receive more for commodities and services thanthe highest prices, including customary price differentials, pertaining to a substantialvolume of actual transactions in any class of trade by such person which were in effectduring the base period.

(b) No employer shall pay and no employee shall receive a wage, salary, or otherform of compensation at a rate higher than that paid or received or in effect duringthe base period, nor shall any person use any means to obtain payment of wages,salaries or other form of compensation higher than those permitted under the Execu-tive order or this regulation. Such remuneration shall be based upon a substantialnumber of actual transactions for services of like or similar nature.

(c) No person shall offer, demand, or receive any rent higher than the maximumrent prevailing for the same or comparable property for a substantial number of actualtransactions during the base period.

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(d) No owner of any interest in real property shall demand or receive more thanthe sales price ceilings which shall be:

(1) The sale price specified in a sales contract signed by both parties on or beforeAugust 14, 1971.

(2) Where there is no such sales contract, the fair market value of the property asof the base period based on sales of like or similar property.

Sec. 3 Guidance

(a) Prices. (1) The ceiling price for the sale of a commodity or service is thehighest price at which a seller delivered or furnished such commodity or service topurchasers in a substantial number of transactions during the base period.

(2) If a seller delivers or offers a commodity or service which he did not pre-viously deliver or furnish, he can determine his ceiling price either by (i) applyingto his current direct unit cost or to his net invoice cost the percentage markup he iscurrently receiving on the most nearly similar commodity or service he sells, or(ii) using the ceiling price prevailing for comparable commodities or services in thesame locality.

(3) A seller's ceiling price when determined, shall reflect his customary pricedifferentials.

(4) Even though the price charged is no higher than the ceiling permitted here-under, the transaction may be in violation if the commodity or service sold has beenreduced in quality or otherwise is not comparable to that sold in the base period.

(b) Rents. The ceiling rent for commercial property, housing accommodations,hotels, motels, rooming houses, farms and other establishments, together with allprivileges, services, furnishings, furniture, equipment, facilities, improvements, andany other privileges connected with the use thereof shall be no greater than thehighest rent charged for the same property during the base period. If the propertywas not rented during the base period, the ceiling price shall be no higher than thehighest rent charged during the nearest preceding 30-day period prior to the baseperiod. If the property was never previously rented, the ceiling rent shall be nohigher than the ceiling rent charged for similar or comparable property in the localityor area.

(c) Wages and salaries. Deferred wage or salary increases which were negotiatedto take effect in the future, cost-of-living increases built into wage contracts orprovided by management, and routine in-grade increases not in effect on or beforeAugust 14, 1971, are not permitted. Regardless of any right or contract heretoforeor hereafter existing, no change or adjustment shall be made in rates of wages, salaries,or other forms of compensation whether by retroactive increases or otherwise.

Sec. 4 Exemptions(a) The Director of OEP at his discretion may make exceptions to or grant exemp-

tions from the prohibitions listed in section 2 of this regulation for the purpose ofpreventing or correcting gross inequities.

(b) Prices of the following categories of goods and services are not subject tothe provisions of Executive Order No. 11615 and this regulation:

(1) Raw agricultural products.(2) School tuitions.(3) Stocks and Bonds.(4) Exports.

Sec. 5 ImportsSales of commodities imported from other countries are subject to the provisions of

this regulation. Price ceilings at all levels, however, may be increased by an amountequivalent to increases in the landed cost of the commodity imported after August 15,1971, due to changes in United States customs duties.

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Sec. 6 Definitions(a) For purposes of this regulation, the term—(1) "Base period"—for any commodity, service', rent, salary or wage includes the

period from July 16, 1971, through August 14, 1971, and, in the event that notransaction occurred in the latter period, the nearest preceding 30-day period inwhich a transaction did occur: Provided, however, That prices, rents, wages, andsalaries need not be established at levels less than those prevailing on May 25, 1970.

(2) "Person"—shall include any individual, corporation, partnership, associationor any other organized group of persons, or legal successors or representatives of theforegoing, and the United States, the States or any other government or their politicalsubdivisions or agencies subject to this regulation, or any other entity of any kind.

(3) "Price"—shall include rentals, commissions, margins, rates, fees, charges orother forms of prices paid or received for the sale or use of commodities or servicesor for the sale of real property.

(4) "Commodity"—means all commodities, articles, products, and materials, in-cluding those provided by public utilities services, such as electricity, gas, and water.

(5) "Services"—means all services rendered, other than as an employee, in con-nection with the processing, distribution, storage, installation, repair, or negotiationor purchases or sales of a commodity, or in connection with the operation of any serv-ice establishment for the servicing of a commodity, or professional services.

(6) "Sale"—includes sales, dispositions, exchanges, and other transfers and con-tracts.

(7) "Class of trade"—means categories of sellers and/or purchasers such as manu-facturers, wholesalers, jobbers, distributors, retailers, government agencies, publicinstitutions, individual consumers, and bulk purchasers.

(8) "Class of purchasers or purchasers of same class"—This term refers to thepractice adopted by a seller in setting different prices for sales to different purchasersto kinds of purchasers (for example, manufacturer, wholesaler, shopper, retailer,Government agency, public institutions or individual consumer) or for purchaserslocated in different areas or for purchasers of different quantities or grades or underdifferent terms or conditions of sale or delivery.

(9) "Rent"—Includes charges for any building, structure or part thereof, or landappurtenant thereto, or services, furnishings, furniture, equipment, facilities, and im-provements connected with ths use or occupancy of such property.

(10) "Net invoice cost"—This term refers to a seller's invoice cost less any discountor allowance he took or could have taken. It does not include separately stated chargessuch as freight, taxes, etc.

(11) "Unit direct cost"—This terms means labor and material costs which enterdirectly into the product. It does not include factory overhead, or indirect manu-facturing expenses, administrative, general, or selling expenses.

(12) "Customary price differentials"—Means differentials, including discounts, al-lowances, premiums and extras, based upon differences in classes or location or pur-chasers, or in terms and conditions of sale or delivery.

(13) "Substantial volume of transactions"—is determined as follows: The ceilingprice is the price at or above which 10 percent of the actual transactions during thebase period were made, except that in the case of increases in posted and effectiveprices during the base period, the base period itself will be considered to have begunat the time of the increase in posted and effective prices.

(b) For purposes of this regulation, wage, salary, or other form of compensationincludes all forms of remuneration to an employee by an employer for personal serv-ices, including, but not limited to premium overtime rate payments, night shift, year-end, and other bonus payments, incentive payments, commissions, vacation and holi-day payments, employer contributions to or payments of insurance or welfare benefitsor pension funds or annuities, and payments in kind.

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Sec. 7 AdministrationPursuant to Cost of Living Council Order No. 1, the Director of OEP has been

delegated authority to implement, administer, monitor and enforce the stabilizationof prices, rents, wages, and salaries established by Executive Order 11615. Significantpolicy decisions shall be made only after consultation with the Cost of Living Councilestablished under Executive Order 11615.

Sec. 8 Recordkeeping(a) All records in existence reflecting prices which were charged for the commodities

or services during the base period, together with all other pertinent records of anykind or description shall be preserved and there shall be maintained available forpublic inspection a record of the highest prices charged during the base period. Allrecords hereafter required to be kept pursuant to regulations or directives issuedhereunder shall be maintained and preserved.

(b) All persons subject to this regulation shall maintain and preserve all recordswhich are necessary to show the manner by which the ceiling rentals were determinedand the record of payments made by persons in occupancy of real property or any partthereof and shall maintain available for public inspection a record of the highest rentscharged during the base period.

(c) All employers shall maintain and preserve all records which reflect the rates ofwages, salaries, or other forms of compensation paid during the base period.

(d) All persons covered by this regulation, upon demand of the Council, the OEP,or their authorized representatives, shall make available for inspection and copyingsuch books and records as may be deemed necessary by the Council or the OEP to carryout the purpose and provisions of the Executive order and the rules and regulationspromulgated thereunder.Sec. 9 Applicability

The provisions of this regulation shall be applicable to the United States, the Dis-trict of Columbia and the Commonwealth of Puerto Rico. This regulation shall notapply to territories and possessions of the United States.

Sec. 10 Violations and penalties(a) Any practice which constitutes a means to obtain a higher price, wage, salary

or rent, than is permitted by this regulation is a violation of this regulation. Suchpractices include, but are not limited to, devices making use of inducements, commis-sions, kickbacks, retroactive increases, transportation arrangements, premiums, dis-counts, special privileges, tie-in agreements, trade understandings, falsification ofrecords, substitution of inferior commodities or failure to provide the same servicesand equipment previously sold.

(b) Whenever it appears that any person is engaged, or is about to engage, in anyacts or practices constituting a violation of any regulation or order under this program,the U.S. Government may, in its discretion, bring an action in the proper district courtof the United States or other place subject to the jurisdiction of the United Statesto enjoin such acts or practices. Upon a proper showing, a permanent or temporaryinjunction or restraining order shall be granted. In addition, upon proper application,such court may issue mandatory injunctions commading any person to comply withany regulation or order under this program.

(c) Any person who willfully violates the provisions of Executive Order 11615 orthis regulation shall be subject to a fine of not more than $5,000 for each violation.

Sec. 11 InformationAll persons seeking information with respect to the provisions of this regulation

or the administration of this program should contact the local office of the InternalRevenue Service, or the Regional Service and Compliance Center of the Office ofEmergency Preparedness in their geographical area, or such other local Federal offices

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as may be hereafter designated. Persons requesting exemptions, exceptions, or adjust-ments should direct their request, in writing, to the Director of the appropriateRegional Service and Compliance Center. OEP Regional Service and ComplianceCenters are located in the following cities:

Atlanta. Kansas City.Boston. New York.Chicago. Philadelphia.Dallas. San Francisco.Denver. Seattle.

Effective date. This regulation, unless modified, superseded or revoked, is effectiveon the date of publication for a period terminating on November 12, 1971.

Dated: August 20, 1971.

G. A. LINCOLN,Directory Office of Emergency Preparedness.

Amendment 1, August 23, 19*1, deletes school tuitions from the list of goods andservices exempt from Executive Order 11615 and this Regulation; Section 11 of theRegulation is amended by adding a second paragraph authorizing the periodicissuance of Circulars containing implementing instructional material.

Amendment 2, August 30, 1971, substitutes the word "ceiling" for the word"maximum" in Section 2(c) of the Regulation; Section 3(c) of the Regulation isrevised to change the date after which delayed or deferred wage or salary increasesnegotiated to take effect in the future, cost-of-living increases built into wagecontracts or provided by management, and routine in-grade increases are not per-mitted; the last paragraph of Section 11 of the Regulation is revised to change thetermination date of the Regulation, or freeze, from November 12, 1971, to November13, 1971.

Amendment 3y September 2, 1971, reverses the sequence of the criteria set outin Section 3 (a) (2) of the Regulation for sellers to determine ceiling prices on newproducts or services.

Amendment 4, September 25, 1971, adds a new paragraph (b) to Section 8, toprovide guidance with respect to customer access to price records of sellers.

Amendment 5, October 30, 1971, revises the last paragraph of Section 11 to extendthe effective date of the Regulation, or freeze, from November 13, 1971, until altered,amended, or revoked by the Cost of Living Council.

Amendment 6, November 15, 1971, adds a second paragraph to Section 7, statingthat it is not necessary to follow the usual rulemaking procedure.

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EXHIBIT 10

T H E PRESIDENT

EXECUTIVE ORDER 11627

FURTHER PROVIDING FOR THE STABILIZATION OF THE ECONOMY

On August 15, 1971, I issued Executive Order No. 11615 providing for the stabiliza-tion of prices, rents, wages, and salaries, for a period of 90 days from the date of thatOrder. That Order also established the Cost of Living Council and charged it with theprimary responsibility for administering the stabilization program, and for recom-mending to me additional policies and mechanisms to permit an orderly transition fromthe 90-day general price, rents, wages, and salaries freeze imposed by Executive OrderNo. 11615 to a more flexible and selective system of economic restraints.

I have received recommendations from the Cost of Living Council, and have deter-mined that the intent of the Economic Stabilization Act of 1970 (Public Law 91-379;84 Stat. 799), as amended, can more effectively be carried out and the goals I specifiedin my speech to the Nation on October 7, 1971, can more effectively be achieved, onand after the date of this Order, by substituting this Order for Executive Order No.11615, as amended. Notwithstanding this substitution, the findings which I made inthe preamble of Executive Order No. 11615 of August 15, 1971, are, after carefulreconsideration, reaffirmed.

Under this Order, the Cost of Living Council will be continued and will be givenbroad authority to stabilize prices, rents, wages, and salaries for so long as the Eco-nomic Stabilization Act of 1970, as amended, is in effect or until such other time as thePresident may hereafter prescribe. This, in effect, will result in the establishment of a

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new economic stabilization program. That program will be carried out through a PayBoard and a Price Commission each of which is newly established by this Order. ThePay Board will be a tripartite organization composed of five representatives of organ-ized labor, five representatives of business, and five representatives of the generalpublic. The Price Commission will be composed of seven members, all from the generalpublic. The President will appoint all members of both the Board and the Commissionand will designate the Chairman of each, who will be a full-time official of the UnitedStates.

The Cost of Living Council will establish broad stabilization goals for the Nation,and the Pay Board and Price Commission, acting through their respective Chairmen,will prescribe specific standards, criteria, and regulations, and make rulings and deci-sions aimed at carrying out these goals.

In addition, this Order establishes three new committees to assist the Council, thePay Board, and the Price Commission in the performance of their functions. They arethe Committee on Interest and Dividends, an inner-agency body made up of theheads of various Federal departments and agencies having financial regulatory func-tions; the Committee on the Health Services Industry; and the Committee on Stateand Local Government Cooperation.

Finally, this Order modifies Executive Order No. 11588 so as to bring the Construc-tion Industry Stabilization Committee established by that Order into the frameworkof the new economic stabilization program established by this Order.

NOW, THEREFORE, by virtue of the authority vested in me by the Constitutionand statutes of the United States, particularly the Economic Stabilization Act of 1970,as amended, it is hereby ordered as follows:

SECTION 1. (a) The Pay Board and Price Commission established by sections 7and 8 of this Order, respectively, and the Chairman of each of those bodies, shall, pur-suant to goals of the Cost of Living Council, take such steps as may be necessary, andauthorized by or pursuant to this Order, to stabilize prices, rents, wages, and salaries.Pending action under this Order, and except as otherwise provided in section 202 ofthe Economic Stabilization Act of 1970, as amended, prices, rents, wages, and salariesare stabilized effective as of August 16, 1971, at levels not greater than the highestof those pertaining to a substantial volume of actual transactions by each individual,business, firm, or other entity of any kind during the 30-day period ending August 14,1971, for like or similar commodities or services. If no transactions occurred in thatperiod, the ceiling will be the highest price, rent, salary, or wage in the nearest preced-ing 30-day period in which transactions did occur. No person shall charge, assess, orreceive, directly or indirectly in any transactions, prices or rents in any form higherthan those permitted hereunder, and no person shall, directly or indirectly, pay oragree to pay, in any transaction, wages or salaries in any form, or to use any means toobtain payment of wages and salaries in any form, higher than those permitted here-under, whether by retroactive increase or otherwise.

(b) Each person engaged in the business of selling or providing commodities orservices shall maintain available for public inspection a record of the highest pricesor rents charged for such or similar commodities or services during the 30-day periodending August 14, 1971.

(c) The provisions of sections 1 and 2 of this Order shall not apply to the pricescharged for raw agricultural products.

SEC. 2. (a) The Cost of Living Council (hereinafter referred to as the Council),established by section 2 of Executive Order No. 11615 of August 15, 1971, is herebycontinued and shall continue to act as an agency of the United States.

(b) The Council shall be composed of the following members: The Secretary of theTreasury, the Secretary of Agriculture, the Secretary of Commerce, the Secretary ofLabor, the Secretary of Housing and Urban Development, the Director of the Officeof Management and Budget, the Chairman of the Council of Economic Advisers, the

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Director of the Office of Emergency Preparedness, the Special Assistant to the Presi-dent for Consumer Affairs, and such others as the President may, from time to time,designate. The Secretary of the Treasury shall serve as Chairman of the Council andthe Chairman of the Council of Economic Advisers shall serve as Vice Chairman. TheChairman of the Board of Governors of the Federal Reserve System shall serve asadviser to the Council.

(c) There shall be a Director of the Cost of Living Council who shall be appointedby the President, be a member of the Council, be a full-time official of the UnitedStates, and be the Council's chief executive officer.

SEC. 3. (a) Except as otherwise provided herein, there are continued to be dele-gated to the Council all of the powers conferred upon the President by the EconomicStabilization Act of 1970, as amended.

(b) The Council shall develop and recommend to the President policies, mecha-nisms and procedures to achieve and maintain stability of prices and costs in a growingeconomy. To this end it shall consult with representatives of agriculture, industry,labor, State and local governments, consumers and the public, through the NationalCommission on Productivity and otherwise.

(c) In all of its actions the Council shall be guided by the need to maintain consist-ency of price and wage policies with fiscal, monetary, international, and other economicpolicies of the United States.

(d) The Council shall inform the public, agriculture, industry, and labor concern-ing the need for controlling inflation and shall encourage and promote voluntaryaction to that end.

SEC. 4. (a) The Council, in carrying out the provisions of this Order, may continueto (i) prescribe definitions for any terms used herein, (ii) make exceptions or grantexemptions, (iii) issue regulations and orders, (iv) provide for the establishment ofcommittees and other comparable groups, and (v) take such other actions as itdetermines to be necessary and appropriate to carry out the purposes of this Order.More particularly, the Council, working through appropriate delegations to the Chair-man oflhe~Pay Board and the Chairman of the Price Commission, may (1) notwith-standing the provisions of subsection (a) of section 1 of this Order, prescribe baseperiods for determining maximum levels for prices, rents, wages, and salaries otherthan the base period specified in subsection (a) of section 1 of this Order, and (2)otherwise increase or decrease, subject to section 202 of the Economic StabilizationAct of 1970, as amended, the maximum levels for prices, rents, wages, and salariesprescribed by subsection (a) of section 1 of this Order.

(b) The Council may redelegate to any agency, instrumentality, or official of theUnited States any authority under this Order, and may, in administering this Order,utilize the services of any other agencies, Federal or State, as may be available andappropriate.

(c) On request of the Chairman of the Council, each executive department oragency is authorized and directed, consistent with law, to furnish the Council withany available information which the Council may require in the performance of itsfunctions.

SEC. 5. The Council may require the maintenance of appropriate records or otherevidence which are necessary in carrying out the provisions of this Order, and mayrequire any person to maintain and produce for examination such records or otherevidence, in such form as it shall require, concerning prices, rents, wages, and salariesand all related matters. The Council may make such exemptions from any require-ment otherwise imposed as are consistent with the purposes of this Order. Any typeof record or evidence required under regulations issued under this Order shall beretained for such period as the Council may prescribe.

SEC. 6. The expenses of the Council shall be paid from such funds of the Depart-ment of the Treasury or otherwise as may be available therefor.

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SEC. 7. (a) There is hereby established a "Pay Board" (hereinafter referred to asthe Board).

(b) The Board shall be composed of 15 members. The members shall be appointedby the President and shall include five labor representatives, five business representa-tives, and five representatives of the general public. The members of the Board shallserve at the pleasure of the President and the President shall designate one of themembers representing the public to serve as Chairman. The Chairman shall serve fulltime and be an official of the United States. The Chairman shall designate an Execu-tive Director of the Board who shall serve under the direction of the Chairman of theBoard and perform such duties as the Chairman may specify.

(c) The Board shall perform such functions with respect to the stabilization ofwages and salaries as the Council delegates to the Board. The Chairman of theBoard shall perform such functions with respect to the stabilization of wages andsalaries as the Council may delegate to him and, in performing those functions,shall exercise such authority, including the development and establishment ofcriteria for the stabilization of wages and salaries which shall be applied in the ad-ministration of this Order, as may be delegated to him by the Council.

SEC. 8. (a) There is hereby established a "Price Commission" (hereinafter referredto as the Commission).

(b) The Commission shall be composed of seven members. The members shallbe appointed by the President and shall be representative of the general public. TheMembers of the Commission shall serve at the pleasure of the President, and thePresident shall designate one of the members to serve as Chairman. The Chairmanshall serve full time and be an official of the United States. The Chairman shalldesignate an Executive Director of the Commission who shall serve under the directionof the Chairman of the Commission, and perform such duties as the Chairman mayspecify.

(c) The Commission shall perform such functions with respect to the stabilizationof prices and rents as the Council delegates to the Commission. The Chairman ofthe Commission shall perform such functions with respect to the stabilization of pricesand rents as the Council may delegate to him and, in performing these functions,shall exercise such authority, including the development and establishment of criteriafor the stabilization of prices and rents which shall be applied in the administrationof this Order, as may be delegated to him by the Council.

SEC. 9. (a) There is hereby established a Committee on Interest and Dividends.The Committee shall be composed of the Chairman of the Board of Governors ofthe Federal Reserve System, the Secretary of the Treasury, the Secretary of Com-merce, the Secretary of Housing and Urban Development, the Chairman of theFederal Deposit Insurance Corporation, the Chairman of the Federal Home LoanBank Board, and such others as the President may, from time to time, designate. TheChairman of the Board of Governors of the Federal Reserve System shall serve asChairman of the Committee.

(b) This Committee shall, subject to review by the Council, formulate andexecute a program for obtaining voluntary restraints on interest rates and dividends.

SEC. 10. (a) There is hereby established a Committee on the Health ServicesIndustry. This Committee shall be composed of such members as the President mayfrom time to time appoint. The members shall be generally representative of medi-cal professions and related occupations, hospitals, the insurance industry, othersupporting industries, consumer interests, and the public. The President shall desig-nate the Chairman of the Committee.

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(b) This Committee shall provide advice concerning special considerations thattend to contribute to inflation in the health services industry. This Committee shallalso assist the Board and Commission in the performance of their functions by makingtechnical analyses of specific matters referred to it by the Board or Commission.

SEC. 11. (a) There is hereby established a Committee on State and Local Govern-ment Cooperation. The Committee shall be composed of such representatives of Stateand local governments and subdivisions thereof, representatives of State and localemployees, and such others as the President may, from time to time, appoint. ThePresident shall designate the Chairman of the Committee.

(b) This Committee shall provide advice concerning special considerations involvedin the stabilization of prices, rents, wages, and salaries pursuant to this Order as theyrelate to State and local governments, and subdivisions and employees thereof. ThisCommittee shall also assist the Board and Commission in the performance of theirfunctions by making technical analyses of specific matters referred to it by the Boardor Commission.

SEC. 12. Upon request of the Chairman of the Council, Federal departments andagencies shall provide such assistance in carrying out the provisions of this Orderas is permitted by law.

SEC. 13. All orders, regulations, circulars, or other directives issued and all otheractions taken pursuant to Executive Order No. 11615, as amended, are herebyconfirmed and ratified, and shall remain in full force and effect, as if issued underthis Order, unless and until altered, amended, or revoked by the Council or by suchcompetent authority as the Council may specify.

SEC. 14. (a) The Construction Industry Stabilization Committee established byExecutive Order No. 11588 of March 29, 1971, and the craft dispute boards author-ized by section 2 of that Order, are hereby continued.

(b) The Chairman of the Pay Board, established by section 7 of this Order, shallhenceforth perform all functions vested in the Secretary of Labor by Executive OrderNo. 11588, with respect to (1) the certification of determinations that a proposedwage or salary increase is not acceptable, (2) the approval of rules and regulationsissued by the Construction Industry Stabilization Committee, and (3) the issuanceof rules and regulations.

(c) Subsection (d) of section 5 and section 6 of Executive Order No. 11588, arehereby revoked.

(d) Subsections (a) and (c) of this section are effective immediately. Subsection(b) of this section shall be effective on the day the Chairman of the Pay Board givesnotice that the Pay Board is operational.

SEC. 15. (a) Whoever willfully violates this Order or any order or regulation issuedunder authority of this Order shall be fined not more than $5,000 for each suchviolation.

(b) The Council may in its discretion request the Department of Justice to bringactions for injunctions authorized under Section 205 of the Economic StabilizationAct of 1970, as amended, whenever it appears to the Council that any person hasengaged, is engaged, or is about to engage in any acts or practices constituting aviolation of any regulation or order issued pursuant to this Order.

SEC. 16. Executive Order No. 11615 of August 15, 1971, and Executive OrderNo. 11617 of September 2, 1971, are hereby superseded.

RICHARD NIXON.

T H E WHITE HOUSE,

October 15, 1971.

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EXHIBIT 11

Public Law 92-21092nd Congress, S. 2891

December 22, 1971

an actTo extend and amend the Economic Stabilization Act of 1070, as amended, and

for other purposes.

Be it enacted by the Senate and House of Representatives of theUnited /States of America in L 1ongress assembled. That this Act may be Economiccited as the "Economic Stabilization Act Amendments of 1971". stabilization

Act AmendmentsECONOMIC STABILIZATION ACT OF 19 70 o f 97 .

SEC. ± Title I I of the Act entitled "An Act to amend the DefenseProduction Act of 1950, and for other purposes*', approved August 15,1970 (Public Law 91-379), as amended, is amended to read as follows: 84 stat. 799.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 12 USC 1904

"TITLE II—COST OF LIVIXG STABILIZATION \ note.\ 8 5 STAT, 743

"§201. Short title 85 STAT. 744"This title may be cited as the 'Economic Stabilization Act of 1970'.

a§202. Findings"It is hereby determined that in order to stabilize the economy,

reduce inflation, minimize unemployment, improve the Nation's com-petitive position in world trade, and protect me purchasing power ofthe dollar, it is necessary to stabilize prices, rents, wages, salaries,dividends, and interest. The adjustments necessary to carry out thisprogram require prompt judgments and actions by the executive branchof the Government. The President is in a position to implementpromptly and effectively the program authorized by this title."§ 203. Presidential authority

"(a) The President is authorized to issue such orders and regula-tions as he deems appropriate, accompanied by a statement of reasonsfor-such orders and regulations, to—

" (1) stabilize prices, rents, wages, and salaries at levels not lessthan those prevailingon May 25,1970, except that prices may bestabilized at levels below those prevailing on such date if it isnecessary to eliminate windfall profits or if it is otherwise neces-sary to carry out the purposes of this title; and

"(2) stabilize interest rates and corporate dividends and similartransfers at levels consistent with orderly economic growth.

Such orders and regulations shall provide for the making of suchadjustments as may be necessary to prevent gross inequities, and shallbe consistent with the standards issued pursuant to subsection (b).

" (b) In carrying out the authority vested in him by subsection (a), standards.the President shall issue standards to serve as a guide for determin-ing levels of wages, salaries, prices, rents, interest rates, corporate divi-dends, and similar transfers which are consistent with the purposesof this title and orderly economic growth. Such standards shall—

" (1) be generally fair and equitable;"(2) provide for the making of such general exceptions and

variations as are necessary to foster orderly economic growthand to prevent gross inequities, hardships, serious market disrup-tions, domestic shortages of raw materials, localized shortages oflabor, and windfall profits;

"(3) take into account changes in productivity and the cost ofliving, as well as such other factors consistent with the purposesof this title as are appropriate;

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Pub. Law 92-210 - 2 - December 22, 1971

Limitation,

85 STAT, 74485 STAT. 745

Substandardwages.

Limitation.

52 Stat. 1060.29 USC 201.

"(4) provide for the requiring of appropriate reductions inprices and rents whenever warranted after consideration of lowercosts, labor shortages, and other pertinent factors; and

"(5) call for generally comparable sacrifices by business andlabor as well as other segments of the economy.

"(c)(1) The authority conferred on the President by this sectionshall not be exercised to limit the level of any wage or salary (includingany insurance or other fringe benefit offered in connection with anemployment contract) scheduled to take effect after November 13,1971, to a level below that which has been agreed to in a contract which(A) related to such wage or salary, and (B) was executed prior toAugust 15, 1971, unless the President determines that the increaseprovided in such contract is unreasonably inconsistent with the stand-ards for wage and salary increases published under subsection (b).

" (2) The President shall promptly take such action as may be nec-essary to permit the payment of any wage or salary increase (includingany insurance or other fringe benefit offered in connection with anemployment contract) which (A) was agreed to in an employmentcontract executed prior to August 15,1971, (B) was scheduled to takeeffect prior to November 14,1971, and (C) was not paid as a result oforders issued under this title, unless the President determines thatthe increase provided in such contract is unreasonably inconsistentwith the standards for wage and salary increases published undersubsection (b).

"(3) In addition to the payment of wage and salary increases pro-vided for under paragraphs (1) and (2), beginning on the date onwhich this subsection takes effect, the President shall promptly takesuch action as may be necessary to require the payment of any wageor salary increases (including any insurance or other fringe benefitsoffered in connection with employment) which have been, or in theabsence of this subsection would be, withheld under the authority ofthis title, if the President determines tlhat—

(A) such increases were provided for by law or contract priorto August 15,1971; and

(B) prices have been advanced, productivity increased, taxeshave been raised, appropriations have been made, or funds haveotherwise been raised or provided for in order to cover suchincreases.

"(d) Notwithstanding any other provisions of this title, this titleshall oe implemented in such a manner that wage increases to anyindividual whose earnings are substandard or who is a member of theworking poor shall not be limited in any manner, until such time as hisearnings are no longer substandard or he is no longer a member ofthe working poor.

"(e) Whenever the authority of this title is implemented withrespect to significant segments of the economy, the President shallrequire the issuance of regulations or orders providing for the stabili-zation of interest rates and finance charges, unless he issues a deter-mination, accompanied by a statement of reasons, that such regulationsor orders are not necessary to maintain such rates and charges at levelsconsonant with orderly economic growth.

" (f) The authority conferred by this section shall not be exercised topreclude the payment of any increase in wages—

"(1} required under the Fair Labor Standards Act of 1938, asamended, or effected as a result of enforcement action under suchAct: or

"(2) required in order to comply with wage determinationsmade by any agency in the executive branch of* the Governmentpursuant to law for work (A) performed under contracts with,or to be performed with financial assistance from, the UnitedStates or the District of Columbia, or any agency or instru-mentality thereof, or (B) performed by aliens who are immi-

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December 22, 1971 - 3 - Pub. Law 92-21085 STAT. 746

grants or who have been temporarily admitted to the UnitedStates pursuant to the Immigration and Nationality Act; or

"(3) paid in conjunction with existing or newly establishedemployee incentive programs which are designed to reflectdirectly increases in employee productivity.

"(g) For the purposes of this section the term 'wages' and 'salaries'do not include contributions by any employer pursuant to a compensa-tion adjustment for—

"(1) any pension, profit sharing, or annuity and savings planwhich meets the requirements of section 401 (a), 404(a) (2), or403 (b) of the Internal Revenue Code of 1954;

" (2) any group insurance plan; or" (3) any disability and health plan;

unless the President determines that the contributions made by anysuch employer are unreasonably inconsistent with the standards forwage, salary, and price increases issued under subsection (b).

" (h) No State or portion thereof shall be exempted from any appli-cation of this title with respect to rents solely by virtue of the fact thatit regulates rents by State or local law, regulation or policy.

"(I ) Rules, regulations, and orders issued under this title shallinsofar as practicable be designed to encourage labor-managementcooperation for the purpose of achieving increased productivity,ana the Executive Director of the National Commission on Produc-tivity shall when appropriate be consulted in the formulation ofpolicies, rules, regulations, orders, and amendments under this title."§204. Delegation

"The President may delegate the performance of any function underthis title to such officers, departments, and agencies of the UnitedStates as he deems appropriate, or to boards, commissions, and similarentities composed in whole or in part of members appointed to rep-resent different sectors of the economy and the general public.Members of such boards, commissions, and similar entities shall beappointed by the President by and with the advice and consent of theSenate; except that—

" (1) the foregoing requirement with respect to Senate confirma-tion does not apply to any member of any such board, commission,or similar entity (other than the Chairman of the Pay Board,established by section 7 of Executive Order Numbered 11627 ofOctober 15, 1971, and the Chairman of the Price Commission,established by section 8 of such Executive order) who is serving,pursuant to appointment by the President, on such board, com-mission, or similar entity on the date of enactment of the Eco-nomic Stabilization Act Amendments of 1971, and who continuesto serve, pursuant to such appointment, on such board, commission,or similar entity after such date; and

" (2) any person serving in the office of Chairman of such PayBoard, and any person serving in the office of Chairman of suchPrice Commission, on the date of enactment of the EconomicStabilization Act Amendments of 1971, may continue to serve insuch capacity on an interim basis without regard to the foregoingrequirement with respect to Senate confirmation until the expira-tion of sixty days after the date of enactment of the EconomicStabilization Act Amendments of 1971, and the provisions of sec-tions 910-913 of title 5, United States Code, shall be applicablewith respect to the procedure to be followed in the Senate inconsidering the nomination of any person to either of such officessubmitted to the Senate by the President during such sixty-dayperiod, except that references in such provisions to a 'resolutionwith respect to a reorganization plan' shall be deemed for thepurpose of this section to refer to such nominations.

66 Stat . 163.8 USC 1101note.

"Wages,""salar ies ."

68A Stat. 134,138.72 Stat . 1620.26 USC 401,404, 403.

36 F.R. 20142.

Ante, p. 743,

80 Stat. 397;Ante, p. 576.

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Pub. Law 92-210 - 4 - December 22, 197185 STAT. 747

Where such boards, commissions, and similar entities are composed inpart of members who serve on less than a full-time basis, legalauthority shall be placed in their chairmen who shall be employees ofthe United States and who shall act only in accordance with themajority vote of members. Nothing in section 203, 205, 207, 208, or

76 stat. 1121- 209 of title 18, United States Code, shall be deemed to apply to any1125. member of any such board, commission, or similar entity who serves

on less than a full-time basis because of membership on such board,commission, or entity."§ 205. Confidentiality of information

"All information reported to or otherwise obtained by any personexercising authority under this title which contains or relates to atrade secret or other matter referred to in section 1905 of title 18, United

62 stat. 791. States Code, shall be considered confidential for the purposes of thatsection, except that such information may be disclosed to other personsempowered to carry out this title solely for the purpose of carrying outthis title or when relevant in any proceeding under this title."§ 206. Subpena power

"The head of an agency exercising authority under this title, or hisduly authorized agent, shall have authority, for any purpose related tothis title, to sign and issue subpenas for the attendance and testimony ofwitnesses and the production of relevant books, papers, and otherdocuments, and to administer oaths. Witnesses summoned under theprovisions of this section shall be paid the same fees and mileage as arepaid to witnesses in the courts of the United States. In case of refusalto obey a subpena served upon any person under the provisions of thissection, the head of the agency authorizing such subpena, or his dele-gate, may request the Attorney General to seek the aid of the districtcourt of the United States for any district in which such person isfound to compel such person, after notice, to appear and give testimony,or to .appear and produce documents before the agency."§ 207. Administrative procedure

"(a) The functions exercised under this title are excluded from theoperation of subchapter I I of chapter 5, and chapter 7 of title 5,

5 use 551,701. United States Code, except as to the requirements of sections 552, 553,si stat. 54,- and r>55 (o) of title 5, United States Code.80 stat. 383. "(h) Any agency authorized by the President to issue niles, regula-

tions, or orders under this title shall, in regulations prescribed by it,establish procedures which are available to any person for the purposeof seeking an interpretation, modification, or rescission of, or seekingan exception or exemption from, such rules, regulations, and orders.If such person is aggrieved by the denial of a request for such actionunder the preceding sentence, he may request a review of such denialby the agency. The agency shall, in regulations prescribed by it, estab-lish appropriate procedures, including hearings where deemed advis-able, for considering such requests for action under this section.

"(c) To the maximum extent possible, the President or his delegateshall conduct formal hearings for the purpose of hearing argumentsor acquiring information bearing on a change or a proposed changein wages, salaries, prices, rents, interest rates, or corporate dividends orsimilar transfers, which have or may have a significantly large impactupon the national economy, and such hearings shall be open to thepublic except that a private formal hearing may be conducted toreceive information considered confidential under section 205 of thistitle."§208. Sanctions; criminal fine and civil penalty

"(a) Whoever willfully violates any order or regulation under thistitle shall be fined not more than $5,000 for each violation.

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December 22, 1971 - 5 - Pub. Law 92-21085 STAT, 748

"(b) Whoever violates any order or regulation under this title shallbe subject to a civil penalty of not more than $2,500 for each violation."§ 209. Injunctions and other relief

"Whenever it appears to any person authorized by the Presidentto exercise authority under this title that any individual or organiza-tion has engaged, is engaged, or is about to engage in any acts orpractices constituting a violation of any order or regulation underthis title, such person may request the Attorney General to bring anaction in the appropriate district court of the United States to enjoinsuch acts or practices, and upon a proper showing a temporary restrain-ing order or a preliminary or permanent injunction shall be grantedwithout bond. Any such court may also issue mandatory injunctionscommanding any person to comply with any such order or regulation.In addition to such injunctive relief, the court may also orderrestitution of moneys received in violation of any such order orregulation."§ 210. Suits for damages or other relief

"(a) Any person suffering legal wrong because of any act or prac-tice arising out of this title, or any order or regulation issued pursuantthereto, may bring an action in a district court of the United States,without regard to the amount in controversy, for appropriate relief,including an action for a declaratory judgment, writ of injunction(subject to the limitations in section 211), and/or damages.

"(b) In any action brought under subsection (a) against any per-son renting property or selling goods or services who is found to haveovercharged the plaintiff, the court may, in its discretion, award theplaintiff reasonable attorney's fees and costs, plus whichever of thefollowing sums is greater:

"(1) an amount not more than three times the amount of theovercharge upon which the action is based, or

"(2) not less than $100 or more than $1,000;except that in any case where the defendant establishes that the over-charge was not intentional and resulted from a bona fide error not-withstanding the maintenance of procedures reasonably adapted tothe avoidance of such error the liability of the defendant shall be lim-ited to the amount of the overcharge: Provided, That where the over-charge is not willful within the meaning of section 208 (a) of this title,no action for an overcharge may be brought by or on behalf of anyperson unless such person nas first presented to the seller or renter abona fide claim for refund of the overcharge and has not receivedrepayment of such overcharge within ninety days from the date of thepresentation of such claim.

"(c) For the purposes of this section, the term 'overcharge' meansthe amount by which the consideration for the rental of property orthe sale of goods or services exceeds the applicable ceiling under regu-lations or orders issued under this title."§ 211. Judicial review

"(a) The district courts of the United States shall have exclusiveoriginal jurisdiction of cases or controversies arising under this title,or under regulations or orders issued thereunder, notwithstanding theamount in controversy; except that nothing in this subsection or insubsection (h) of this section affects the power of any court of com-petent jurisdiction to consider, hear, and determine any issue by way ofdefense (other than a defense based on the constitutionality of thistitle or the validity of action taken by any agency under this title)raised in any proceeding before such court. If in any such proceedingan issue by way of defense is raised based on the constitutionality ofthis title or the validity of agency action under this title, the case shallbe subject to removal by either party to a district court of the United

"Overcharge."

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85 STAT+ 749Pub. Law 92-210 - 6 - December 22, 1971

28 USC 1441.TemporaryEmergencyCourt ofAppeals.Establishment.

Jurisdiction.

Enjoinment.

80 Stat. 393.

72 Stat. 1770.

States in accordance with the applicable provisions of chapter 89 oftitle 28, United States Code.

"(b) (1) There is hereby created a court of the United States to beknown as the Temporary Emergency Court of Appeals, which shallconsist of three or more judges to be designated by the Chief Justiceof the United States from judges of the United States district courtsand circuit courts of appeals. The Chief Justice of the United Statesshall designate one of such judges as chief judge of the TemporaryEmergency Court of Appeals, and may, from time to time, designateadditional judges for such court and revoke previous designations.The chief judge may, from time to time, divide the court into divisionsof three or more members, and any such division may render judgmentas the judgment of the court. Except as provided in subsection (d) (2)of this section, the court shall not have power to issue any interlocu-tory decree staying or restraining in whole or in part any provisionof this title, or the effectiveness of any regulation or order issuedthereunder. In all other respects, the court shall have the powers of acircuit court of appeals with respect to the jurisdiction conferredon it by this title. The court shall exercise its powers and prescriberules governing its procedure in such manner as to expedite the deter-mination of cases over which it has jurisdiction under this title. Thecourt shall have a seal, hold sessions at such places as it may specify,and appoint a clerk and such other employees as it deems necessaryor proper.

"(2) Except as otherwise provided in this section, the TemporaryEmergency Court of Appeals shall have exclusive jurisdiction of allappeals from the district courts of the United States in cases and con-troversies arising under this title or under regulations or orders issuedthereunder. Such appeals shall be taken by the filing of a notice ofappeal with the Temporary Emergency Court of Appeals within thirtydays of the entry of judgment by the district court.

" (c) In any action commenced under this title in any district courtof the United States in which the court determines that a substantialconstitutional issue exists, the court shall certify such issue to theTemporary Emergency Court of Appeals. Upon such certification, theTemporary Emergency Court of Appeals shall determine the appro-priate manner of disposition which may include a determination thatthe entire action be sent to it for consideration or it may, on the issuescertified, give binding instructions and remand the action to thecertifying court for further disposition.

" (d) ( l ) Subject to paragraph (2), no regulation of any agencyexercising authority under this title shall be enjoined or set aside, inwhole or in part, unless a final judgment determines that the issuanceof such regulation was in excess of the agency's authority, wasarbitrary or capricious, or was otherwise unlawful under the criteriaset forth in section 706(2) of title 5, United States Code, and no orderof such agency shall be enjoined or set aside, in whole or in part, unlessa final judgment determines that such order is in excess of the agency'sauthority, or is based upon findings which are not supported by sub-stantial evidence.

" (2) A district court of the United States or the Temporary Emer-gency Court of Appeals may enjoin temporarily or permanently theapplication of a particular regulation or order issued under this titleto a person who is a party to litigation before it. Appeals frominterlocutory decisions by a district court of the United States underthis paragraph may be taken in accordance with the provisions ofsection 1292(b) of title 28, United States Code; except that referencein such section to the courts of appeals shall be deemed to refer to theTemporary Emergency Court of Appeals.

"(e)( l ) Except as provided in subsection (d) of this section, nointerlocutory or permanent injunction restraining the enforcement,

249474-893 O - 72 - 18


EXHIBITS

December 22, 1971 - 7 - Pub. Law 92-21085 STAT, 750

operation, or execution of this title, or any regulation or order issuedthereunder, shall be granted by any district court of the United Statesor judge thereof. Any such court shall have jurisdiction to declare(A) that a regulation of an agency exercising authority under this titleis in excess of the agency's authority, is arbitrary or capricious, or isotherwise unlawful under the criteria set forth in section 706(2) oftitle 5, United States Code, or (B) that an order of such agency is so stat. 393.invalid upon a determination that the order is in excess of the agency'sauthority, or is based upon findings which are not supported by sub-stantial evidence.

"(2) Any party aggrieved by a declaration of a district court of Appeal.the United States respecting the validity of any regulation or orderissued under this title may, within thirty days after the entry of suchdeclaration, file a notice of appeal therefrom in the Temporary Emer-gency Court of Appeals. In addition, any party believing himselfentitled by reason of such declaration to a permanent injunctionrestraining the enforcement, operation, or execution of such regulationor order may file, within the same thirty-day period, a motion in theTemporary Emergency Court of Appeals requesting such injunctiverelief. Following consideration of such appeal or motion, the Tempo-rary Emergency Court of Appeals shall enter a final judgment affirm-ing, reversing, or modifying the determination of the district courtand granting such permanent injunctive relief, if any, as it deemsappropriate.

"(f) The effectiveness of a final judgment of the Temporary Emer-gency Court of Appeals enjoining or setting aside in whole or in partany provision of this title, or any regulation or order issued there-under, shall be postponed until the expiration of thirty days fromthe entry thereof, except that if a petition for a writ of certiorari isfiled with the Supreme Court under subsection (g) within such thirtydays, the effectiveness of such judgment shall be postponed until anorder of the Supreme Court denying such petition becomes final, oruntil other final disposition of the action by the Supreme Court.

"(g) Within thirty days after entry of any judgment or order by theTemporary Emergency Court of Appeals, a petition for a writ ofcertiorari may be filed in the Supreme Court of the United States,and thereupon the judgment or order shall be subject to review bythe Supreme Court in the same manner as a judgment of a UnitedStates court of appeals as provided in section 1254 of title 28, UnitedStates Code. The Temporary Emergency Court of Appeals, and the 62 stat. 928.Supreme Court upon review of judgments and orders of the Tempo-rary Emergency Court of Appeals, shall have exclusive jurisdiction todetermine the constitutional validity of any provision of this title orof any regulation or order issued under this title. Except as providedin this section, no court, Federal or State, shall have jurisdiction orpower to consider the constitutional validity of any provision of thistitle or of any such regulation or order, or to stay, restrain, enjoin,or set aside, in whole or in part, any provision of this title authorizingthe issuance of such regulations or orders, or any provision of anysuch regulation or order, or to restrain or enjoin the enforcementof any such provision.

"(h) The provisions of this section apply to any actions or suits Effectivepending in any court, Federal or State, on the date of enactment of date.this section in which no final order or judgment has been rendered.Any affected party seeking relief shall be required to follow the proce-dures of this title."§ 212. Personnel

"(a) Any agency or officer of the Government carrying out func-tions under this title is authorized to employ such personnel as the Pres-ident deems necessary to carry out the purposes of this title.

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85 STAT. 751

EXHIBITS

Pub. Law 92-210 - 8 - December 22, 1971

" (b ) The President may appoint five officers to be responsible forcarrying out functions of this title of whom three shall be compensatedat the rate prescribed for level I I I of the Executive Schedule (5 U.S.C.

80 s t a t . 460; 5314) and two at the rate prescribed for level V of the Executive83 s t a t . 864. Schedule (5 U.S.C. 5316). Appropriate titles and the order of succes-

sion among such officers may be designated b}- the President.u ( c ) Any member of a board, commission, or similar entity estab-

lished by the President pursuant to authority conferred by this titlewho serves on less than a full-time basis shall receive compensationfrom the date of his appointment at a rate equal to the per diemequivalent of the rate prescribed for level I V of the ExecutiveSchedule (5 U.S.C. 5315) when actually engaged in the performanceof his duties as such member.

" ( d ) (1) In addition to the number of positions which may be placed80 s t a t . 878; in GS-16,17, and 18, under section 5108 of title 5, United States Code,84 s t a t . 1955. not to exceed twenty positions may be placed in GS-16, 17, and 18, to

carry out the functions under this title." (2 ) The authori ty under this subsection shall be subject to the

procedures prescribed under section 5108 of title 5, United StatesCode, and shall continue only for the duration of the exercise of func-tions under this title.

" ( e ) The President may require the detail of employees from anyexecutive agency to carry out the purposes of this title.

" ( f ) The President is authorized to appoint, without regard to thecivil service laws, such advisory committees as he deems appropri-ate for the purpose of consultation with and advice to the Presidentin the performance of his functions under this title. Members ofadvisory committees, other than those regularly employed by the Fed-eral Government, while attending meetings of such committees orwhile otherwise serving at the request of the President may be paidcompensation a t rates not exceeding those authorized for individualsunder section 5332 of title 5, United States Code, and, while so serv-ing away from their homes or regular places of business, may beallowed travel expenses, including per diem as authorized by section

83 s t a t . 190. 5703 of title 5, United States Code, for persons in the Governmentservice employed intermittently.

" ( g ) ( l ) Under such regulations as the President may prescribe,officers and employees of the Government who are appointed, withouta break of service of one or more work days, to any position forcarrying out functions under this title are entitled, upon separationfrom such position, to reemployment in the position occupied atthe time of appointment or in a position of comparable grade andsalary.

" (2 ) An officer or employee who, at the time of his appointmentunder paragraph (1) of this subsection, is covered by section 8336 (c)

80 s t a t . 571. o f title 5, United States Code, shall continue to be covered there-under while carrying out functions under this title."§ 213. Experts and consultants

"Exper ts and consultants may be employed, as authorized by section3109 of title 5, United States Code, for the performance of functionsunder this title, and individuals so employed may be compensatedat rates not to exceed the per diem equivalent of the rate for grade18 of the General Schedule established by section 5332 of title 5,United States Code. Such contracts may fee renewed from time totime without limitation. Service of can individual as an expert orconsultant under this section shall not be considered as employmentor the holding of an office or position bringing such individual withinthe provisions of section 3323 (a) of title 5, United States Code, sec-

74 s t a t . 846; tion 872 of the Foreign Service Act of 1946, or any other law limiting75 s t a t . 464. the reemployment of retired officers or employees.2 2 US C 1 1 1 2 .

251


EXHIBITS

December 22, 1971 - 9 - Pub. Law 92-21085 STAT. 752

"§ 214. Small business"(a) It is the sense of the Congress that small business enterprises

should be encouraged to make the greatest possible contribution towardachieving the objectives of this title.

" (b) In order to carry out the policy stated in subsection (a)—"(1) the Small Business Administration shall to the maximum

extent possible provide small business enterprises with full infor-mation concerning (A) the provisions of this title relating or ofbenefit to such enterprises, and (B) the activities of the variousdepartments and agencies under this title;

"(2) in administering this title, such exemptions shall be pro-vided for small business enterprises as may be ieasible without im-peding the accomplishment of the purposes of this title; and

" (3) in administering this title, special provision shall be madefor the expeditious handling of all requests, applications, orappeals from small business enterprises.

"§ 215. Mass transportation systems"No company, or other entity constituting a public benefit corpora-

tion, charged by law or contract with the responsibility to operate amass transportation facility or facilities, the fares of which are nototherwise regulated, shall increase any fare without first obtainingapproval under this section from the President or his delegate."§216. Reports

"(a) In transmitting the Economic Report required under section3(a) of the Employment Act of 1946 (15 IJ.S.C. 1022), the President 60 stat. 24$.shall include a section describing the actions taken under this title 70 stat. 290.during the preceding vear and giving his assessment of the progressattained in achieving the purposes of this title. The President shall alsotransmit quarterly reports to the Congress not later than thirty daysafter the close of eacn calendar quarter describing the actions takenunder this title during the preceding quarter and giving his assessmentof the progress attained in achieving the purposes of this title.

"(b) In carrying out his authority under this title, the Presidentshall study and evaluate the relationship between excess profits, thestabilization of the economy, and the creation of new jobs. The resultsof such study shall be incorporated in the reports referred to insubsection (a)."§ 217. Funding

"(a) There are authorized to be appropriated to the President, toremain available until expended, such sums as may be necessary tocarry out the provisions of this title.

"(b) The President may accept and use in furtherance of the pur-poses of this title money, funds, property, and services of any kindmade available for such purposes by gift, devise, bequest, grant, orotherwise."§ 218. Expiration

"The authority to issue and enforce orders and regulations underthis title expires at midnight April 30,1973, but such expiration shallnot affect any action or pending proceedings, civil or criminal, notfinally determined on such date, nor any action or proceeding basedupon any act committed prior to May 1,1973."§219. Ratification

"The assignment of personnel and expenditure of funds pursuant tothe authority conferred on the President by this title prior to the dateof enactment of the Economic Stabilization Act Amendments of 1971 Ante, p. 743.are hereby approved, ratified, and confirmed.

252


EXHIBITS

85 STAT. 753Pub. Law 92-210 - 10 - December 22, 1971

84 S t a t . 1948.5 USC 5305note .

Ante, p. 38.

Effectivedate.

a§220. Severability"If any provision of this title or the application of such provision to

any person or circumstances is held invalid, the remainder of the title,and the application of such provision to persons or circumstances otherthan those as to which it is held invalid, shall not be affected thereby."

FEDERAL EMPLOYEE COMPENSATION

SEC. 3. Notwithstanding any provision of section 3(c) of the Fed-eral Pay Comparability Act of 1970 (Public Law 91-656), or of sec-tion 5305 of title 5, United States Code, as added by section 3(a) ofPublic Law 91-656, and the provisions of the alternative plan sub-mitted by the President to the Congress pursuant thereto on August31, 1971, such comparability adjustments in the rates of pay of eachFederal statutory pay system as may be required under such sections5305 and 3(c), based on the 1971 Bureau of Labor Statistics survey—

(1) shall not be greater than the guidelines established for thewage and salary adjustments for the private sector that may beauthorized under authority of any statute of the United States,including the Economic Stabilization Act of 1970 (Public Law91-379; 84 Stat. 799), as amended, and that may be in effect onDecember 31,1971; and

(2) shall be placed into effect on the first day of the first payperiod that begins on or after January 1,1972.

hinff in this section shall be construed to iNothing in this section shall be construed to provide any adjustmentsin rates of pay of any Federal statutory pay system which are greaterthan the adjustments based on the 1971 Bureau of Labor Statisticssurvey.

NATIONAL PRODUCTIVITY POLICY

SEC. 4. (a) (1) It is the policy of the United States to promote effi-cient production, marketing, distribution, and use of goods and serv-ices in the private sector, and improve the morale of the Americanworker, all of which are essential to a prosperous and secure freeworld, and to achieve the objectives of national economic policy.

(2) The Congress finds that the persistence of inflationary pres-sures, and of a high rate of unemployment, the underutilization andobsolescence of production facilities, and the inadequacy of produc-tivity are damaging to the effort to stabilize the economy.

(3) The Congress, therefore, finds a national need to increase eco-nomic productivity which depends on the effectiveness of manage-ment, the investment of capital for research, development, andadvanced technology and on the training and motivation of theAmerican worker.

(4) The Congress further finds that at a time when economic stabi-lization programs require price-wage restraints, management andlabor have a strong mutual interest in containing "cost-push" inflationand increasing output per man-hour so that real wages may increasewithout causing increased prices, and that, without in any wayinfringing on the rights of management or labor, machinery should beprovided for translating this mutuality of interest into voluntaryaction.

(b) It shall be the objective of the President's National Commis-sion on Productivity (hereinafter referred to as the "Commission")—

(1) to enlist the cooperation of labor, management, and Stateand local governments, in a manner calculated to foster and pro-mote increased*productivity through free competitive enterprise

253


EXHIBITS

D e c e m b e r 22, 1971 - 11 - P u b . Law 92-210

toward the implementation of the national policy declared in theEmployment Act of 1946 to create and maintain "conditions 60 stat. 23.under which there will be afforded useful employment opportuni- 15 use 1021ties, including self-employment, for those able, willing, and seek- note.ing to work, and to promote maximum employment, production,and purchasing power";

(2) to promote the maintenance and improvement of workermotivation and to enlist community interest in increasing pro-ductivity and reducing waste;

(3) to promote the more effective use of labor and managementpersonnel in the interest of increased productivity;

(4) to promote sound wage and price policies in the public inter-est, and to seek to accomplish that objective within a climate ofcooperation and understanding between labor, management, andthe public, and within a framework of peaceful labor-manage-ment relations and free and responsible collective bargaining;

(5) to promote policies designed to insure that United Statesproducts are competitive in domestic and world markets;

(6) to develop programs to deal with the social and economicproblems of employees adversely affected by automation or othertechnological change or the relocation of industries.

(c) (1) It shall be the duty and function of the Commission, in orderto achieve the objectives set forth in subsection (b) of this section, toencourage and assist in the organization and the work of labor-man-agement-public committees and similar groups on a plant, community,regional, and industry basis. Such assistance shall include aid—

(A) in the development of apprenticeship, training, retrain-ing, and other programs for employee and management educationfor development of greater upgraded and more diversified skills;

(B) in the formulation of programs designed to reduce wasteand absenteeism and to improve employee safety and health;

(C) in the revision of building codes and other local ordinancesand laws, in order to keep them continuously responsive to currenteconomic conditions;

(D) in planning for provision of adequate transportation foremployees;

(E) in the exploration of means to expand exports of the prod-ucts of United States industry;

(F) in the development, initiation, and expansion of employeeincentive compensation, profit-sharing and stockownership sys-tems and other production incentive programs;

(G) in the dissemination of technical information and othermaterial to publicize its work and objectives;

(H) to encourage studies of techniques and programs similarto those in paragraphs (A) to (G) of this subsection, as they areapplied in foreign countries; and

(I) in the dissemination of information and analyses concern-ing the economic opportunities and outlook in various regions andcommunities, and of information on industrial techniques designedfor the increase of productivity.

(2) The Commission shall transmit to the President and to the Report toCongress not later than March 1 of each yeafan annual report of its President andprevious year's activities under this Act. ^ Congress.

(3) Th C i i h l l f h tV \y

(3) The Commission Shall pp.rfhmn snph ntVior fiinAf.inng>nnnqiqfi>nf\85 STAT. 754with the foregoing, as it determines to be appropriate and necessary 8 5 STAT» 7 5 5

to achieve the objectives set forth in subsection (b) of this section,(d) (1) In exercising its duties and function under this Act—

(A) the Commission may consult with such representatives ofindustry, labor, agriculture, consumers, State and local govern-ments, and other groups, organizations, and individuals as itdeems advisable to insure the participation of such interestedparties;

254


85 STAT. 755 •

ExecutiveDirector.

80 Stat. 416.Appropriation.

Pub. Law 92-210 - 12 -

EXHIBITS

D e c e m b e r 2 2 , 1971

(B) the Commission shall, to the extent possible, use the serv-ices, facilities, and information (including statistical informa-tion) of other Government agencies as the President may directas well as of private agencies and professional experts in orderthat duplication of effort and expense may be avoided;

(C) the Commission shall coordinate such services and facili-ties referred to in subsection (B) above in order to supply techni-cal and administrative assistance to labor-management-publiccommittees and similar groups referred to in subsection (c) (1);

(D) the Commission shall establish the regional offices andsuch local offices as it deems necessary;

(E) the Commission shall hold regional and industrywide con-ferences to formulate ideas and programs for the fulfillment ofthe objectives set forth in subsection (C);

(F) the Commission may formulate model programs to amelio-rate the effects of unemployment caused by technological progress;

(G) the Commission may furnish assistance to parties incollective bargaining entering into collective bargaining agree-ments; and

(H) the Commission may review collective bargaining agree-ments already in effect or those being negotiated to ascertaintheir effects on productivity; and it may have the power to makerecommendations with respect to the agreements made or aboutto be made in specific industries.

(2) The Commission may accept gifts or bequests, either forcarrying out specific programs which it deems desirable or for itsgeneral activities.

(e) (1) The Executive Director of the Commission shall be theprincipal executive officer of the Commission in carrying out theobjectives, functions, duties and powers of the Commission describedin subsections (b) through (d) of this section.

(2) The Executive Director of the Commission, with the approvalof the Chairman of the Commission, is authorized (A) to appointand fix the compensation of such officers and employees, and prescribetheir functions and duties, as may be necessary to carry out theprovisions of this section, and (B) to obtain the services of expertsand consultants in accordance with the provisions of section 3109 oftitle 5, United States Code.

(f) There is hereby authorized to be appropriated the sum of$10,000,000 to carry out the purposes of this section during the periodending April 30, 1973.

Approved December 22, 1971.

LEGISLATIVE HISTORY:

HOUSE REPORTS: No. 92-714 accompanying H.R. 11309 (Comm. on Bankingand Currency) and Nos. 92-745 and 92-753 (Comm. ofConference).

SENATE REPORT No. 92-507 (Comm. on Banking, Housing and Urban A f f a i r s ) .CONGRESSIONAL RECORD, Vol. 117 (1971):

Nov. 29, 30, Dec. 1, considered and passed Senate .Dec. 10, considered and passed House, amended, in l i eu of H. R. 11309,Dec. 13, Senate agreed t o conference report No. 92-745.Dec. 14, House sustained point of order aga ins t conference report

No. 92-745 and requested fur ther conference; Senat.e andHouse agreed to conference report No. 92-753.

WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 7, No. 52:Deo» 22, P r e s i d e n t i a l s ta tement .

255


Bibliographical Mote

The principal sources of information for this history have beenthe records accumulated by the Office of Emergency Preparednessduring the freeze. Research in these records was supplemented byinterviews with OEP officials. Published materials relating to thewage-price freeze and to background events and problems havealso been used extensively. The following notes specify thesesources and give some suggestions for further reading.

OFFICIAL RECORDS AND PERSONAL INTERVIEWS

The work is based largely on the official documents and files ofOEP relating to all aspects of its responsibilities for managing thefreeze. These include planning documents, policy papers, minutesand notes of meetings, periodic reports and after-action reportsfrom all headquarters and field elements, reports of visits and in-spections, statistics, messages, letters, memoranda, and sundry othermaterials. While some of these records were of a routine nature,others contained highly significant information on the activities,problems, and accomplishments of the freeze period. The majorcollections of these materials are the following:

—OEP Director's files—Stabilization Program Guidelines—Executive Policy Committee Notes—Daily Reports of the Director of OEP to the Chairman of

the Cost of Living Council—Weekly Reports of the Director of OEP to the Chairman of

the Cost of Living Council—National Office Operations Center message file—Daily Status Reports of Economic Stabilization Activities,

from OEP headquarters offices to OEP Director—After-Action Reports from National Office elements and

Regional Offices to Assistant Director Haakon Lindjord—After-Action Reports from Regional Directors to OEP His-

torian

257


BIBLIOGRAPHY

—OEP Economic Stabilization Division files—OEP Coordination Staff files—CLC and OEP Press Releases—Speeches of OEP Director and other key officials—Memoranda and Letters by OEP officials

During the freeze the OEP Historian's office built up a file ofdocuments of historical significance as an aid to the research andwriting to be done. The Historian was placed on distributionschedules for all incoming and outgoing messages, policy documen-tation, reports, and other relevant materials and had access to thecomplete files of all OEP divisions. The materials assembled bythe Historian constitute the Agency's "Historical DocumentationFile." The basic documents in this file will eventually be placedin the custody of the National Archives and Records Service ofthe General Services Administration.

To amplify, clarify, and interpret the official records, the authorsinterviewed key OEP officials and others who had participated inthe freeze operations. In addition, these officials reviewed drafts ofall chapters and gave the historians the benefit of their intimatepersonal knowledge of events. The following OEP officials fur-nished their views and comments on draft manuscripts:

George A. Lincoln, DirectorDarrell M. Trent, Deputy DirectorHaakon Lindjord, Assistant DirectorElmer F. Bennett, Assistant Director/General CounselEugene J. Quindlen, Assistant Director for Government Pre-

parednessWilliam C. Truppner, Assistant Director for Resource AnalysisRobert H. Kupperman, Deputy Assistant Director for Informa-

tion and AnalysisEdward R. Saunders, Jr., Deputy Assistant Director for Resource

EvaluationStephen A. Loftus, Assistant to the Director for Planning ReviewDavid J. Pattison, Assistant to the Director for Congressional

and Public AffairsJ. Ray O'Connell, Assistant to the Director for AdministrationLaurent E. Morin, Planning ReviewJohn P. Cannon, Special Assistant for Regional AffairsF. Joseph Russo, Chief, Economic Stabilization DivisionWilliam A. Fletcher, Planning Review

Many who left for other assignments upon the termination of thefreeze reviewed draft chapters that covered their particular specialty

258


BIBLIOGRAPHY

areas. Among these were Christopher A. Norred Jr., E. R. HeibergIII, Anthony A. Smith, Howard M. Steele, Raymond Snead,Charles A. Gibb, and Robert A. Kagan. Leonard A. Skubal, formerChief of the Economic Stabilization Division, in several interviewsand written communications, gave the historians the benefit of hisfirst-hand experience with pre-freeze and ensuing developments.The views and comments of these individuals were most helpful onpoints obscure in the records.

PUBLISHED WORKS

While placing chief reliance on the primary sources mentionedabove, the authors drew on a wide array of published materialswhich provided valuable insights and background informationbearing on the subject of this history. The most important of thesepublished works are grouped below under three headings: (1)U.S. Government Documents; (2) Books; and (3) Articles andOther Materials.

U.S. Government Documents

In addition to the legislation, Executive orders, and Presidentialmessages and statements included in the "Exhibits" section orcited in the text, the following public documents were particularlyuseful:

Eckstein, Otto, and Roger Brinner. The Inflation Process in the United States. AStudy Prepared for the Use of the Joint Economic Committee, Congress of theUnited States. Joint Committee Print, 92nd Cong., 2d Sess., Feb. 22, 1972. Wash-ington: Government Printing Office, 1972. Examines the relationship betweenthe level of employment and the rate of inflation and seeks to identify theprocesses which produced the combination of high unemployment and rapidinflation which has recently been experienced in the United States.

Peterson, Peter G. "A Foreign Economic Perspective," and "The United States inthe Changing World Economy," both dated Dec. 27, 1971 (unpublished). Areview and analysis of the changing world economy prepared in two sectionsby the Assistant to the President for International Economic Affairs and Execu-tive Director of the Council on International Economic Policy. The first is "apersonal overview of the origins and possible policy implications of the newworld economy." The second section consists largely of statistical backgroundmaterial that provided the basis for briefings to the President and the Councilon International Economic Policy during 1971.

Schultze, Charles L. Recent Inflation in the United States. Study Paper No. 1, Studyof Employment, Growth, and Price Levels, Joint Economic Committee of theCongress. Washington: Government Printing Office, 1959.

259


BIBLIOGRAPHY

Thurow, Lester C, and Robert E. B. Lucas. The American Distribution of Income:A Structural Problem. A Study Prepared for the Use of the Joint EconomicCommittee, Congress of the United States. Joint Committee Print, 92nd Cong.,2d Sess., March 17, 1972. Washington: Government Printing Office, 1972.

U.S. Cabinet Committee on Price Stability. Industrial Structural and CompetitivePolicy, Mergers and Acquisitions. Washington: Government Printing Office, 1969.See also Studies by the Staff of the Cabinet Committee on Price Stability, January1969. Washington: Government Printing Office, 1969.

U.S. Congress, House, Committee on Government Operations, Subcommittee onExecutive and Legislative Reorganization. Price-Wage Guideposts, Hearings onH.R. 13278, 91st Cong., 1st Sess. Washington: Government Printing Office, 1969.

. . Committee on Banking and Currency. Economic Stabilization, Hearings,92nd Cong., 1st Sess. Washington: Government Printing Office, 1971.

_. Committee on the Judiciary, Subcommittee on Antitrust and Monopoly.Economic Concentration, Hearings, 90th Cong., 5 Parts. Washington: GovernmentPrinting Office, 1964-67.

U.S. Congress, Joint Economic Committee. U.S. Economic Growth to 1975: Potentialsand Problems. Washington: Government Printing Office, 1966.

Recent Federal Reserve Actions and Economic Policy Coordination.Washington: Government Printing Office, 1966.

_. Hearings, Twentieth Anniversary of the Employment Act of 1946: AnEconomic Symposium, 89th Cong., 2nd Sess., Washington: Government PrintingOffice, 1966.

_. The Federal Budget, Inflation, and Full Employment, 91st Cong., 1stSess., Washington: Government Printing Office, 1969.

_. The President's New Economic Program, Hearings, 92nd Cong., 1st Sess.Parts 1-4. Washington: Government Printing Office, 1971.

_. Phase II of the President's New Economic Program, Hearings, 92nd Cong.,1st Sess., November 18 and 20, 1971. Washington: Government Printing Office,1972.

U.S. Congress, Senate, Committee on Banking and Currency. State of the NationalEconomy, Hearings, 91st Cong., 2nd Sess. Washington: Government PrintingOffice, 1970.

Committee on Banking, Housing and Urban Affairs. Economic Stabiliza-tion Legislation, Hearings on S.2712, 92nd Cong., 1st Sess., November 1-5, 1971.Washington: Government Printing Office, 1971.

Subcommittee on Production and Stabilization. Inflation: The Need fora More Balanced Policy Mix, Hearings on S. Res. 357, 91st Cong., 2nd Sess.Washington: Government Printing Office, 1970.

U.S. Department of Labor. The Anatomy of Inflation. Prepared by Geoffrey H.Moore. U.S. Department of Labor Report 373. Washington: Department ofLabor, 1969.

Bureau of Labor Statistics. Prices, Escalation, and Economic Stability.Washington: Government Printing Office, 1971. One of a series of interpretivepublications designed for a broader audience than that reached by the BLStechnical bulletins, reports, and staff papers.

The Meaning and Measurement of Productivity. Bulletin 1714, preparedfor the National Commission on Productivity, Sept. 1971. Washington: Govern-ment Printing Office, 1972. Includes two papers: "The Meaning of Productivity,"by Herbert Stein, member of the President's Council of Economic Advisers; and"Concepts and Measures of Productivity," by Jerome A. Mark, Assistant Com-missioner for Productivity and Technology, Bureau of Labor Statistics, U.S.Department of Labor.

U.S. Executive Office of the President, Cost of Living Council. Economic StabilizationProgram Quarterly Report Covering the Period August 15 Through December31, 1971. Washington: Government Printing Office, 1972.

Economic Stabilization Program Quarterly Report Covering the Period

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BIBLIOGRAPHY

January 1 Through March 31, 1972. Washington: Government Printing Office,1972.

_. Council of Economic Advisers. The Economy at Mid-1972. Testimonyof the Council of Economic Advisers submitted to the Joint Economic Committeeof the Congress, with an Introduction by the President, August 1972. Washington:Government Printing Office, 1972. A slightly edited and updated version oftestimony presented July 24, 1972, and a supplementary statement submitted forthe record at that time. Includes a statistical appendix, bringing the key data upto mid-1972.

U.S. Library of Congress, Legislative Reference Service.. 4 Collection of Excerpts andBibliography Relating to the Intercollegiate Debate Topic 1970-71, "Resolved thatthe Federal Government Should Adopt Programs of Compulsory Wage and PriceControls," House Doc. 91-384, 91st Cong., 2nd Sess. Washington: GovernmentPrinting Office, 1970. Provides useful background material on inflation, therecord of past experience in the U.S. and foreign countries, and a range ofcurrent views on the problem and of approaches to its solution.

U.S. President. Economic Reports of the President, with the Annual Reports of theCouncil of Economic Advisers. Washington: Government Printing Office, 1969-1972.

The President's Task Force on Economic Growth. Policies for AmericanEconomic Progress in the Seventies, Report, May 1970. Washington: GovernmentPrinting Office, 1970.

Books

Ackley, Gardner. Stemming World Inflation. The Atlantic Papers 2, 1971. Paris,France: The Atlantic Institute, 1971.

Alexander, Arthur J. Prices and the Guideposts: The Effects of Government Per-suasion on Individual Prices. Santa Monica, California: Rand Corporation, 1970.

Anderson, Leonall C. "A Look at Ten Months of Price-Wage Controls/' FederalReserve Bank of St. Louis Review, Vol. 54, No. 6 (June 1972) .

Bain, Joe S. Industrial Organization. 2nd ed. New York: Wiley, 1968.Blair, John M. Economic Concentration: Structure, Behavior and Public Policy.

New York: Harcourt Brace Jovanovich, 1972. A major work by the former chiefeconomist of the Senate Antitrust and Monopoly Subcommittee showing howpowerful companies and unions set prices and wages in this country withoutregard to the forces of competition.

Bok, Derek C, and John T. Dunlop. Labor and the American Community. NewYork: Simon and Schuster, 1970.

Bureau of National Affairs, Inc. Federal Controls. Washington: BNA, 1971-72.Compilation of material on the wage-price freeze published on an "as-needed"basis and grouped under basic texts, organization and administration, prices,rents, import surcharge, and monetary controls. Wage and salary controls arecovered in depth in BNA's labor reports, and taxes are covered in Daily Reportfor Executives, Daily Tax Report, and Tax Management. Useful for summariesof developments and for basic documentation on the economic stabilizationprogram.

Burns, Arthur F. The Management of Prosperity. Pittsburgh: Carnegie Instituteof Technology, 1965.

,, and Paul A. Samuelson. Full Employment, Guideposts and EconomicStability. Washington: American Enterprise Institute for Public Policy Research,1967.

Cagan, Phillip. Recent Monetary Policy and the Inflation, 1965 to August 1971.Special Analysis No. 9, 1971. Washington: American Enterprise Institute forPublic Policy Research, 1971.

Clark, John M. Competition as a Dynamic Process. Washington: Brookings Institu-tion, 1961.

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BIBLIOGRAPHY

Coleman, John R., ed. The Changing American Economy. New York: Basic Books,1967.

Commerce Clearing House, Inc. Economic Controls: 90 Days, August 16-November13 1971. New York: Commerce Clearing House, 1971.

Committee for Economic Development. Managing a Full Employment Economy.Symposium on Problems of Maintaining Prosperity Without Inflation, LosAngeles, 1966. New York: Committee for Economic Development, 1969.

, Program Committee. A Stabilizing Fiscal and Monetary Policy for 1970.New York: Committee for Economic Development, 1969.

__, Research and Policy Committee. Further Weapons Against Inflation:Measures to Supplement General Fiscal and Monetary Policies. New York:Committee for Economic Development, 1970.

_, High Employment Without Inflation: A Positive Program for EconomicStabilization. New York: Committee for Economic Development, 1972.

Congressional Quarterly, Inc. Congress and the Nation, 1945-1964: A Review ofGovernment and Politics in the Postwar Years. Washington: CongressionalQuarterly Service, 1965.

Congress and the Nation, 1965-1968: A Review of Government andPolitics During the Johnson Years. Washington: Congressional Quarterly Service,1969.

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269


Index

Ackley, Gardner, 18Administrative Procedures Act, 140AFL-CIO, 124, 128, 139, 144, 164After-action reports, 116, 197, 200-201Agency Coordination Section, 69Agricultural products, 17, 83, 109-110Agricultural Stabilization and

Conservation Serviceaid to OEP, 24, 33, 39-40information activities, 148-149, 239-

240OEP liaison with, 58-59, 68, 72, 196postfreeze program, 177

Agriculture, Secretary of, 42Albert, Carl, 15, 161Alimony, 104Althaus, Wayne, 60American Federation of Teachers, 128American Retail Federation, 158Anderson, John B., 162Associated Press, 153Automobile prices, 82, 85, 192

B

Baird, William D., 57n, 60Balance of payments, 2-3, 7, 11, 193Bankruptcy, 110-112, 114Baruch, Bernard M., 15nBase period, 17-18, 74, 80-81, 83, 87Bennett, Elmer F., 35, 120, 150Berkman, Richard L., 56, 58nBudget deficit, 3, 193Bureau of National Affairs, 154Bureaucracy, avoidance of, 12-13, 21, 28,

42, 117, 170, 174Burns, Arthur F., 9, 19n, 192Butler, G. Lee, 56, 58n

Cannon, John P., 57n, 58, 185, 197Ceilings, 17-18, 80-83, 119, 132-133, 159Census Bureau, 72, 123

Chamber of Commerce, U.S., 144, 158Civil Service Commission, 38, 43-44,

48-49, 195-196Collective bargaining, 14Commerce Clearing House, 154Commerce Department, 99, 158Commodity futures, 83Communications Section, OEP, 61Communications system, OEP, 28, 46,

60-64, 196-197flow, 62 (chart)and public, 65-67, 143-167

Complaints, See Violation*Compliance, 25, 38, 99

Branch, 36, 58, 120, 135checks on, 39, 118-119, 121enforcement, 59, 117-138, 141, 166voluntary, 12, 27, 117-118, 123-124,

145, 166, 200Compulsory arbitration, 9Computers, use of, 33, 52, 67, 71-72, 184,

187Congress, 9, 131, 140

exemption referrals, 102 (table), 103and freeze, 16, 161-162inquiries from, 35, 65-67, 147, 162responsibility for economy, 2, 6, 15,

138-139and standby legislation, 6-7, 15-16

Congressional and Public Affairs Office,OEP, 35, 60, 67-68, 70, 147, 149, 152-153, 155, 159-163, 166

Connally, Secretary John B., 9-10, 17-21,74, 96, 98, 128, 177n

Constitutionality of freeze, 138-140Construction Industry Stabilization

Committee, 7, 23-24, 176Consumer Price Index, 135, 190-191Contracts, 83, 87-91, 93, 140Controls. See also Freeze; Prices; Rents;

Wages

direct, 1, 3-4, 15-16, 23, 27, 194indirect, 1-3, 23

270


INDEX

institution of, 1, 8-19, 97standby, 23system, 26, 75techniques, 53-55, 96

Coordination Meetings, 55-57, 59, 70-72,97, 198

Coordination Office, OEP, 35, 55-57, 71Correspondence Section, OEP, 35, 60,

66-67, 70, 76, 147, 161Cost of living, 6, 94, 98Cost of Living Council, 203-204

establishment, v, 11, 19-21and freeze, 41 (chart)guidelines, 18operations, by OEP, 21-25, 42, 57,

147, 231 (exhibit)Phase II plans, 168-177policy, 18, 33, 35, 77, 81, 100, 147reports to, 71-72responsibilities, 13, 20, 54, 96, 168,

174-177, 261Council of Economic Advisers, 5-8, 16,

23, 82, 168, 190-192, 194n, 195Credit Control Act of 1969, 18nCrisis management, 22, 26, 28-29, 33, 42,

53-54, 196Customs duties, 86Daily Economic Stabilization Report,

57, 71Davis-Bacon Act, 104Defense Civil Preparedness Agency, 46,

65, 159-160Defense Department, 45-46, 48-49, 121Defense Production Act, 15Detailed Personnel, 33, 39-40, 41

(chart), 43-50, 45 (table), 47 (table), 55,181, 185, 195-196

Disasters, natural, 21-22, 28, 30, 32-33,186, 204

Discounts, price, 82Disinflation, 4Dividends, 17-18, 145, 173, 176Dollar, 2, 8, 11Dover, Arthur, 182Dow Jones industrial average, 143Dues, 85

EEconomic stability, 1, 3, 16, 30, 125, 144,

187-189, 203Economic Stabilization Act Amendments

of 1971, 244 (exhibit)Economic Stabilization Act of 1970, 7,

12n, 14-17, 19-20, 74, 96, 128, 131, 138,139, 172, 207, 224 (exhibit)

Economic Stabilization Agency, 23, 30,36, 42

Economic Stabilization Circulars, 74-75,79, 87, 130

Economic Stabilization Division, OEP,22-23, 33, 171, 182, 188

Economic Stabilization Regulation, 1,74, 81, 87, 130, 232 (exhibit), 234(exhibit), 343 (exhibit)

Eisenhower, General Dwight D., 22Emergency, national, 12n, 14, 22-23, 28,

30, 42, 196EMISARI system, 52, 64, 65w, 72, 78,

184; See also ComputersEmployment, 2-7, 16, 192Employment Act of 1946, 2-3Enforcement, freeze, 59, 117-138, 141,

166; See also ComplianceEscalator clauses, 10Exceptions. See Exemptions.Executive Order No. 11588, 225 (exhibit)Executive Order No. 11615, 17, 19-20,

24, 74, 123, 139, 179, 229 (exhibit)Executive Order No. 11627, 179, 239

(exhibit)Executive Policy Committee, CLC, 20,

57, 69, 76-77, 100, 110, 113, 177, 198Executive Reservists; See National

Defense Executive ReserveExemptions, 20, 25, 32, 35, 40, 76, 116.

See also Fringe Benefits; Office ofExceptions and Exemptions

authority, 96-98denials, 99-104, 106-108, 111-113,

115, 199machinery, 99-101price, 109-114publicity on, 152requests, 99-104, 102 (table), 104

(table), 112, 114-115, 196

Facsimile terminal (FAX), 61, 62(chart), 64

Farmers Home Administration, 109Federal employment, 12-13, 86, 131, 164Federal Executive Board, 44Federal Power Commission, 49Federal Regional Councils, 36Federal Register, 35, 74, 79

271


INDEX

Federal Regulations and PurchasingReview Board, 121

Federal Reserve Board, 18nFederal Telecommunications System

(FTS), 63Fines, 123Fitzsimmons, Frank £., 144Fletcher, William, 66, 147-148, 187Formula

pricing, 93rentals, 92

Free market, v, 5, 11, 14Freeze. See also Exemptions; Inequities;

Lincoln, George A.; Office of Emer-gency Preparedness; Prices; Rents;Wages,

administration of, 19-25, 35, 43-49,53, 55, 145-146, 189

apparatus, 16, 19-25, 40, 41 (chart),53-55, 99-101, 117

assessment of, 202-204complaints, 13, 38-40, 54, 101-102,

115, 118-121, 122 (table), 126, 133compliance machinery, 25, 27, 36,

64, 118-127, 131-133, 141-142, 166constitutionality, 138-140enforcement, 59, 117-138, 141, 166establishment of, 1, 8, 11-15, 17-19,

74, 117funding, 51guidelines. See Stabilization Program

Guidelinesimpact, 28, 38, 40, 88, 117-118, 145-

146, 159, 166, 191inquiries, 27, 49, 54, 60, 65, 67, 80,

115, 197legislation, 10, 14-17, 74-75, 91, 117-

121, 123, 138-140management, 12-14, 32-33, 40, 53-73,

143, 194-204policy, 13, 74, 78-95, 97-98, 198-199provisional organization, 30-36temporary aspect, 12, 15, 97, 142violations, 16-17, 38, 76, 99, 101,

118-127, 133-135, 166, 200Fringe benefits, 86-88, 94, 99, 104-107Fuel prices, 82-83, 86, 133-134

Galbraith, John Kenneth, 5, 8, 15Game Plan, 2, 8, 42Gaskill, Irving, 52

General Counsel, OEP, 35-36, 49, 69-70,72, 76-77, 91, 100, 135

and compliance, 58, 120and policy, 66, 79, 134, 198postfreeze role, 180

General Services Administration, 38, 51-52, 195

Gibb, Charles A., 120GNP deflator, 187Golden sheep rule, 90Government Preparedness Office, 32-35,

46, 188Government Printing Office, 78Governors* Bulletin, 160Gray, L. Patrick, 120, 139Group health insurance, 84, 98, 104-106,

115, 134GSA Advance Record System (ARS), 61,

62 (chart)Guidelines. See Stabilization Program

Guidelines; Voluntary RestraintGullander, W. P., 144

H

Hardin, Clifford M., 19nHardship situations, 93, 98, 102-103,

111-112, 166Health, Education, and Welfare

Department, 45Heiberg, E. R., 56, 58, 178, 183Historian's Office, OEP, 36, 47 (table),

57, 80nHodgson, James, 19nHotchkiss, George, 70House Banking and Currency

Committee, 13THousing and Urban Development

Department, 99

Import policy, 6, 11, 86Incomes policy, 4-5, 117Industry Advisory Committees, 182Inequities, 16, 27, 98-99, 106, 115-116,

199Inflation

alerts, 6-7control, 8, 11, 143, 168, 187cost-push, 5, 15demand-pull, 1, 5, 15persistence of, 7, 13-15, 165, 168psychology, 143, 163, 189

272


INDEX

rate, 5, 172, 190-191, 194spiral, 4, 9, 164, 169

Information Systems Office, OEP, 71Injunctions, 16-17, 123-126, 126 (tables).

See also LitigationInquiry Review Section, OEP, 66, 68-70,

76, 183Insurance, 76, 83-84, 94, 98, 104-106, 115Interest, 10, 17-18, 144-145, 173, 176, 192Internal Revenue Service. See also Freeze.

aid to OEP, 24-25, 33, 39-40, 54,118, 201

Delegation Order No. 117, 233(exhibit)

and exemption cases, 100, 102-104,114

information activities, 148-149, 153,160

inquiries to, 68 (table)investigations of violations, 118-119,

121, 122 (table), 125, 166, 200OEP liaison with, 58-59, 68, 72, 196postfreeze program, 176-177, 182-186

Investigation procedures, 39, 118-121Investment capital, 18Investment tax credit, 11-12

Jawboning, 4, 120, 169; see alsoVoluntary restraint

Johnson, President Lyndon B., 4, 16Johnston, Douglas, 57n, 66, 147-148, 181Joint Board on Fuel Supply and Fuel

Transport, 22Joint Economic Committee, 9Justice Department, 17, 58-59, 72, 118-

120, 122 (table), 124, 139, 166, 178, 200

Knauer, Virginia H., I9n

Kolb, Avery, 60

Korean War, 1, 3, 13, 97, 169

Kupperman, Robert H., 70-71

Labor Department, 45 (table), 66, 99Labor, organized, 27, 88, 124, 127-128,

139, 144-145, 164, 167, 174, 193. Seealso Unions, labor.

Legal assistance, OEP, 49, 54, 69

Legislation, control, 10, 14-17, 74-75,117-121, 123

Lending institutions, 18Leventhal, Harold, 139-140Lewis, Arnold, 120n,Lewis, Arnold C, 69, 183Lincoln, George A. See also Freeze;

Office of EmergencyPreparedness,

background, 22Congressional briefing, 162and Cost of Living Council, iv,

20-21, 24, 42, 57, 71, 74, 76-78, 96,100, 186, 198, 203

crisis management, 22, 26, 28-29,33, 42, 53-54, 196

exemption policy, 98and Executive Reservists, 42-43and freeze administration, 20-24,

26-28, 42, 70, 202-203information policy, 146, 150-153,

156, 158, 161, 197-198liaison role, 57, 77-78, 93, 120, 162,

171operations management, 21-25, 30,

36, 38-39, 42-43, 70, 74, 76-77postfreeze plans, 93-94, 168-169, 171,

177-178, 183, 186-188report to President, 186and Regional Directors, 202responsibilities outside freeze, 26,

29-30, 33, 40, 59and staff expansion, 28, 30, 36, 39,

42-52tribute by President, 203

Lindjord, Haakon, 35, 55-57, 198Litigation, 119-126, 122 (tables), 159

M

Manual for Regional EmergencyOperations—Economic StabilizationAgency, 36

Marshall, General George C, 22Mathematics and Computation

Laboratory, 52McConachie, Charles R., 120McCracken, Paul W., 8, 19n, 20Meany, George, 128, 144, 164Media, communications, 27, 35, 55, 65,

78, 118, 146-155, 164, 201Military wages, 86, 104, 131Mills, Robert, 61

273


INDEX

Mills, Wilbur D., 189Minimum wages, 106-107Money supply, InMoral suasion, 4Murray, Richard, 181

N

Nader, Ralph, 132National Association of Manufacturers,

7, 144National Association of Retail Druggists,

158National Commission on Productivity,

6, 176National Communications Network, 65National Defense Executive Reserve,

42-43, 156National Education Association, 90,

128-129National Governors' Conference, 160National Office, OEP, 55-58, 147-148National Restaurant Association, 158National Security Council, 30Natural Disaster Operations Center, 61Neeb, Louis, 57, 58n, 77, 181Nelson, William E., 120nNew Economic Policy. See also Freeze;

Office of Emergency Preparednessestablishment vii-viii, 11-12,143, 189opposition to, 128, 193program, 11-14, 117

New York Times, 124-125, 152Nixon, President Richard M., 21, 27

administration economic problems,

1-8, 16-17before Congress, 14,169,172,200-201freeze announcement, v, vii-viii, 8,

12, 15, 17, 24, 117, 143, 165, 189Phase II plans, 114-116, 169-170, 172,

191public addresses, 5-6, 9-10, 12, 14-15,

19, 114, 116, 143, 165, 189standby authority, 6-7, 14-15, 17,

172-173tribute to OEP, 203

Noncompliance, with freeze, 40, 89, 121,124, 129-131

Norred, Christopher A., 97-98, 100, 115,150, 181

Nuclear war, 21-23, 27, 188

O'Connell, J. Ray, 43, 51, 57nOEP/IRS Transition Task Force, 183Office of Civil Defense. See Defense Civil

Preparedness AgencyOffice of Congressional and Public

Affairs, OEP. See Congressional andPublic Affairs Office, OEP.

Office of Defense Resources, 30, 42Office of Emergency Preparedness. See

also Cost of Living Council; Freeze;Lincoln, George A.

administration, 21, 26-28, 40-42,194-204

authority of, v, vii, 24, 42, 118-121assessment of management, 194-204delegation of functions, 24-25, 28-29,

40detailed personnel, 33, 39-40, 41

(chart), 43-50, 45 (table), 47(table), 55, 181, 185, 195-196

duties outside freeze, 26, 29-30, 33,59, 195

and emergencies, 21-23, 28, 54and freeze enforcement, 123-131.

See also Enforcement,funding, 51mission, 13, 21, 23-26operating arm of CLC, 21-25, 42,

57, 147, 231 (exhibit)organization charts, 31, 34, 41postfreeze program, 92-95, 170-172,

177, 186-188priorities, 32, 53questions to, 27, 35, 68-73, 68

(table), 146, 155, 195regions, 36-42, 37 (map), 41 (chart)responsibilities, 23, 25, 30, 196, 202security, 50-51staff, 24, 26, 28, 35, 42-52, 97, 181

Office of Exceptions and Exemptions,OEP, 35, 66, 69, 97, 150

Office of Information and Analysis,OEP, 33, 34 (chart)

Office of Management and Budget, 20,23, 43-44, 48, 51, 178, 196

Office of Resource Evaluation, OEP, 31(chart), 33

Okun, Arthur, 18Operations Center, OEP, 28, 34 (chart),

46, 60-61, 63, 69, 146-147, 184, 197

274


INDEX

Operations Office, OEP, 32, 34 (chart),58, 60, 66, 70-71, 73

Pattison, David J., 67, 147, 149, 159, 162Pay Board, 49, 56, 92-94, 103, 114, 131,

174-176, 178-182, 187-188, 201Pensions, 104Perry, Spence W., 97, 181Personnel problems, OEP, 47-50; See

also Detailed PersonnelPhase I suits, 126 (tables)Phase II, 13, 19, 35, 93, 95, 103, 114, 116,

133, 142, 167-169, 188, 193administration, 174-178planning, OEP input, 170-172problems, 180, 193transition to, 178-186, 201-202

Pierce, Charles, 43Policy and Guidance Liaison Office,

OEP, 35, 57, 93, 150, 181Policy Questions Office, OEP, 33, 66, 16nPolls, opinion, 143, 145, 163, 165Postfreeze program, 19, 24-25, 67, 92-95,

114-116, 168-188, 201-202; See alsoPhase II

Potential Court Cases, 59, 119, 122(table)

President, 1-2, 6-7, 14-17, 96, 140. Seealso Johnson, President Lyndon B.;Nixon, President Richard M.

Presidential Proclamation 4074, 12nPresidential statement on freeze, v,

vii-viii, 12-14, 19, 117, 143, 165, 189President's Disaster Relief Fund, 30Press Reception Room, OEP, 157Press releases, 148-149, 151-154, 158, 166,

201Preston, Edward F., 182-183Price Commission, 49, 56, 92-94, 103,

108, 114, 133, 174-176, 178-182, 184,187-188, 201

Price lists, 116, 124, 131-133, 133 (table),141, 159, 166-167

Prices. See also Controls; Exemptions;Freeze; Price lists; Violations

adjustment, 12, 82automobile, 12, 82, 85, 192base, 133ceilings, 17-18, 80-83, 119, 132-133,

159complaints of violations, 13, 38-40,

54, 101-102, 115, 118-121, 122(table), 126, 133, 164

fluctuations, 82fuel, 81-86, 134guidelines, 10, 13, 17, 24increases, 3, 5-6, 13, 16, 76, 81, 110,

125, 194Phase II reporting, 173 (table)policy, 75-76, 80-86, 109-114, 200rollbacks, 10, 81, 133-134stability, 2, 4-5, 172steel, 112

Productive capacity, 1, 5Productivity, 5-6Profits, 17-19, 93, 144, 176Public

hearings, 140information, 25, 35, 39-40, 143,

145-159, 162-167, 200-201inquiries, 38-40, 65-70, 68 (table),

162-167, 196opinion, 27-28, 32, 115-116, 118reaction, 70, 101-102, 143-145support, 27, 117-118, 142-145, 158,

163-167, 200-201, 203Public Information Officers, OEP

Regional, 148-150, 152-156Public Law 92-15, 228 (exhibit)Public utilities, 83, 86, 93, 107Purchasing power, 3, 115

Questions and Answers, OEP, 79, 152,157-158, 160

Quindlen, Eugene, 32n, 60, 171n

Rationing, 6Recession, 3-4Recommended Court Cases, 85, 120Reese, Leonard, 60Regional Directors, OEP, 21, 36, 38,

43-44. 49, 59, 80, 202exemption authority, 99-100,102-103,

104 (table), 116liaison with local officials, 159-160postfreeze program, 177,179,184-185problems, 73, 78, 94-95, 98, 116, 184,

196, 199speaking program, 156-157and violations, 119-120

275


INDEX

Regional Offices, OEP, 24-25, 35-42, 37(map), 41 (chart)

duties, 38, 40, 44, 51-52, 147, 195-196and exemptions, 99, 102-103, 108-

109, 115guidance to, 60, 63, 78-79, 196-197organization, 58-59, 64postfreeze operations, 184-185and press, 153-155and public, 147-150, 155-157, 199queries to, 68-70, 68 (chart), 148,

195-196Regulations and Purchasing Review

Board, 6Relief from the Freeze, 13, 76, 97-99,

111, 116Rent Advisory Board, 176Rents, 32-33, 149-151

exemptions, 99freeze on, 26, 81-82, 91-92increases, 81, 93-94policy, 109-114, 176violations, 127

Reporting system, OEP, 25, 60-61, 64,70-73, 101-103, 123; See alsoAfter-Action Reports

Resource Analysis Office, OEP, 33-35, 46Retail sales, 192Revenue sharing, 12Robinson, Aubrey E., 139Romney, George, 19nRumsfeld, Donald, 174, 179

Salaries. See Teachers' salaries; Wages.Saunders, Edward R., 76, 78, 180Seasonality rule, 82Security, OEP, 50-51Service and Compliance Administration,

IRS, 176Service transactions, 84Shultz, George P., 19nSimmons, Thomas J., 56, 59Skubal, Leonard A., 22-24, I71nSmall Business Administration, 99Smith, Anthony A., 56Smith, Preston, 128Snead, Raymond, 120Social Security, 104, 106Solomon, Ezra, 191Speakers' Bureau, OEP, 35, 147, 155-157Spencer, Patricia, 58n, 187

Sports events admissions, 81, 135-138Stabilization Program Guidelines, 33, 40,

65-66, 74, 78-80, 159, 198Standby authority, 6-7, 14-15, 17, 172-173Stans, Maurice H., 18, 19n, 168State officials, 23, 27, 59, 78, 159-161Steel prices, 112Stein, Herbert, 5, 8, 168-169Stock options, 88Stockpiles, 30, 32Surcharge, import, 11, 12n, 86Systems Evaluation Division, OEP, 72

Taxes, 76, 92, 106credit, 11-12excess profits, 18excise, 12, 86laws, 11state and local, 85

Teachers' salaries, 89-91, 94, 127-131,141, 144, 162, 165

Telephones, use, 54, 58, 60-66, 70, 146Teletypewriter Exchange Service

(TWX), 61, 62 (chart), 65Television coverage, 151, 154, 201Trade associations, 67, 101, 155, 157-159,

167Trade deficit, 7Transaction rule, 80-84, 87, 91Transportation, Secretary of, 22Treasury Department Order No. 150-75,

233 (exhibit)Treasury, Secretary of, 39, 42, 204Trent, Darrell M., 32-33, 51, 57-58, 70,

148-150, 160Truppner, William C , 33, 171, 187Tuition, 81, 84, 110

U

Unemployment, 1-5, 9, 193Unions, labor, 5, 16. See also Labor,

organized.United Press International, 153UNIVAC terminals, 64; See also

ComputersU.S. Army Interagency Communications

Agency, 46, 52, 61U.S. Army Strategic Communications

Command, 46, 65U.S. Conference of Mayors, 160U.S. Postal Service, 63, 65

276


Vietnam War, 1, 3-4Violations, freeze, 16-17, 38-40, 54, 76,

99, 101, 118-127, 133-135, 166, 200Volcker, Paul A., 11Voluntary restraint, 4, 97, 173-174, 200,

203

W

Wage-price Guideposts. See IncomesPolicy; Voluntary Restraint

Wage-price spiral, 5, 98Wages. See also Teachers' salaries.

adjustment, 12, 131benefits, 104-107contracts, 87-88controls, 6-7, 9-10, 15-17, 74exemptions, 99freeze establishment, 17-18, 25-26,

74, 86-87

INDEX

guidelines, 4, 7, 10, 24increases, 5-6, 13, 81, 86-88, 104, 115,

128-131Phase II reporting, 173 (table)policy, 1, 75, 82, 86-88

Walker, Charls E., 20Wall Street Journal, 111, 152Water and sewer rates, 107-109, 115Weber, Arnold, 12, 19-20, 90, 120, 124,

129, 132, 141, 174n.Weinberger, Caspar, 121Welfare, 12, 104, 106Wholesale Price Index, 135, 191, 192

(table)Woodcock, Leonard, 164nWorld War II, 1-2, 97, 169

Yoshpe, Harry B., x, 15n

U.S. GOVERNMENT PRINTING OFFICE: 1972 O 474-893

277
